"The rate of improvement slowed since December, as output and new orders increased at weaker rates amid a further reduction in employment," the Caixin PMI statement said on Friday. "At the same time, inflationary pressures remained sharp, with both input costs and output charges increasing at rates scarcely seen throughout the past five years."

In December, China's PPI (producer price index) climbed to a five-year high, rising 5.5 percent on-year, exiting years of deflation. Producer prices had slumped in recent years amid excess capacity in many industries and a slowdown in global growth. That also signaled not just likely stabilizing economic growth, but also a likely pick up in corporate profits.

The Caixin figures came as China's markets reopened on Friday after closing for the week-long Lunar New Year holiday.

The Australian dollar slipped after the data to as low as $0.7638 from $0.7660 before the release. China is a key market for Australia's exports of raw materials, tying its economic prospects to the mainland.

At least one analyst wasn't overly concerned by what the Caixin PMI's miss might signal.

"Given the volatility we have around Chinese New Year, it's very hard to read. I was expecting something softer for January, but until we get February and March numbers it's really very hard to get a sense of how economic activity is doing," Julia Wang, a greater China economist, told CNBC's "Squawk Box" on Friday.

"They've basically been on holiday over the past two weeks. Most of the construction and construction sites basically ground to a halt in mid-January," she added."That's why the PMIs and activity data in January as a whole are expected to be a little bit softer."

On Tuesday, the official manufacturing PMI came in at 51.3 for January, down a smidgen from 51.4 in December, but still better than a Reuters poll forecast of 51.2.

The official figures tend to focus on larger companies, while the private China Caixin PMI focuses on smaller and medium-sized firms.

The two data points likely confirm indications that the mainland's economy has been recovering recently, but some questioned how long the pickup might last.

"The Chinese economy maintained stable growth in January. But the sub-indices showed that the current growth momentum may be hard to sustain. We must remain wary of downward pressures on the economy this year," Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in the Caixin statement on Friday.

Others were also concerned about what the data might signal.

"Early indicators for January, including today's PMI release, suggest that the recent recovery remains largely intact for now but has begun to lose steam," Julian Evans-Pritchard, a China economist at Capital Economics, said in a note on Friday. "Given clear signs that the property market is cooling and that monetary and fiscal policy have become less supportive, we expect economic growth to begin to slow again in the coming quarters."

The official non-manufacturing PMI, which takes a reading on the services sector, rose to 54.6 in January from 54.5 in December. Those figures were released on Tuesday.

While the manufacturing PMI data tend to be more closely watched, China's pivot toward domestic consumption and away from manufacturing- and investment-led growth means the service sector, which includes consumer industries such as real estate, retail and leisure, has become the majority of the mainland economy.

It is also a key barometer of consumption, which accounts for more than 50 percent of gross domestic product (GDP).

The figures likely signaled that China's economic growth was stabilizing. Concerns have persisted over the mainland economy's health, as private-sector debt has surged even as the amount of growth from additional debt has declined.

But the economy in recent months has received a fillip from a pickup in the property sector.

Coal rule killed by U.S. Congress, others near chopping block

The U.S. Congress moved swiftly on Thursday to undo Obama-era rules on the environment, corruption, labor and guns, with the Senate wiping from the books a rule aimed at reducing water pollution.

By a vote of 54-45, the Senate approved a resolution already passed in the House of Representatives to kill the rule aimed at keeping pollutants out of streams in areas near mountaintop removal coal-mining sites.

The resolution now goes to President Donald Trump, who is expected to sign it quickly. It was only the second time the Congressional Review Act, which allows lawmakers to stop newly minted regulations in their tracks, has been used successfully since it was passed in 2000.

The Senate then turned to an equally controversial rule requiring mining and energy companies such as Exxon Mobil and Chevron to disclose taxes and other payments they make to governments at home and abroad. Democrats, who cannot filibuster the resolution, attempted to slow the process by pushing debate late into the night, with a vote scheduled for shortly after 6:30 a.m. on Friday.

Republicans are using their control of Congress and the White House to attack regulations they believe hurt the economy. They cast the stream protection rule as harming industry and usurping state rights.

"The Obama Administration’s stream buffer rule was an attack against coal miners and their families,” said the top Senate Republican, Mitch McConnell, adding it had threatened jobs in his home state of Kentucky.

Environmental activists and many Democrats said it would have made drinking water safer by monitoring for pollutants such as lead.

"Given that many of these toxins are known to cause birth defects, developmental delays, and other health and environmental impacts, this basic monitoring provision was essential," said Jeni Collins, associate legislative representative for environmental group Earthjustice.

The coal industry hopes the repeal will lead Trump to overturn a moratorium by former President Barack Obama's administration on some coal leases.

Senator Joe Manchin, who represents West Virginia, historically coal country, was one of the few Democrats who supported killing the rule. He told CNN more than 400 changes had been made to the regulation as it was drafted.

"There's nobody in West Virginia that wants dirty water and dirty air, but you can't throw 400 different regulations ... on top of what we already have and expect anyone to survive," he said.

GUNS, PAY DISCRIMINATION

Also on Thursday, the House on Thursday overturned Obama administration rules addressing pay discrimination at federal contractors and requiring expanded background checks for gun purchasers who receive Social Security benefits and have a history of mental illness. It plans on Friday to kill a measure addressing methane emissions on public lands. The Senate will then take all three up.

The Senate is also targeting rules enacted in the final months of Obama's administration for extinction. Senator David Perdue, a Republican from Georgia, introduced on Wednesday a resolution for killing one intended to protect users of gift and prepaid cards.

Under the Congressional Review Act, lawmakers can vote to undo regulations with a simple majority. Agencies cannot revisit overturned regulations. Timing in the law means any regulation enacted since May is eligible for repeal.

The House already approved a resolution ending the rule that requires oil companies to publicly state taxes and payments, which is part of the 2010 Dodd-Frank Wall Street reform law.

Republicans and some oil and mining companies say the rule is burdensome and costly and duplicates other long-standing regulations.

Supporters of the rule see it as vital for exposing bribery and questionable financial ties U.S. companies may have with foreign governments, as well as showing shareholders how their money is spent.

Bitcoin Extends China Golden Week Gains - Tops $1000, One-Month Highs

As the dollar continues to tumble (and amid China's quite period during Golden Week), Bitcoin has gently begun to shake off China 'probe' weakness and extend its gains once again. For the first time since January 5th, Bitcoin is trading above $1000...

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Sulfur emission cap: 2020 deadline fuelling challenges

As ship-owners gear up to embrace new sulfur emission norms that will come into effect from 2020 onwards, challenges related to upgrade of vessels, availability of cleaner fuels, and ordering new ships remain vexing issues.

The International Maritime Organization, or IMO, has stipulated a reduction in the maximum sulfur limit in marine fuels from 3.5% to 0.5% from January 2020 onwards.

In less than three years, all ships across the globe will mandatorily have to use low-sulfur fuels or gas instead of the high-sulfur fuel oil, or HSFO, that currently dominates the market.

A common refrain among ship-owners is that while the date of implementation of the new sulfur cap is finalized, the "fine print of how to enforce and implement" needs to be worked upon. This is significant because the new norms will entail additional costs that can cause serious commercial distortion if the implementation does not happen uniformly across the world.

Since this involves a global equivalent to millions of tons of fuels used in thousands of ships, several stakeholders in the shipping industry are now suggesting additional measures to ensure that the transition is smooth and hassle free.

According to shipping industry estimates, based on current demand, close to 2.5 million b/d, or over 75% of the current bunker fuel market, will be displaced when the lower sulfur content norms are implemented.

"There are a number of practical consequences -- it is of course hard to believe that in one minute on the new year eve of 2020, all ships around the world will suddenly become 100% compliant, particularly if in the middle of a voyage," Dragos Rauta, technical director at the International Association of Independent Tanker Owners, or Intertanko, told S&P Global Platts.

Ship-owners will have to choose whether they want to use 0.5% sulfur fuel or invest in scrubbers, an assessment they will make based on ship's age, price of scrubbers, operational costs of scrubbers, and price differential between HSFO and ultra-low sulfur fuels, or ULSFs, Rauta said.

NEW PROPOSALS

"A great deal more needs to be done at IMO ahead of the 2020 deadline," the secretary general of Asian Shipowners' Association, Harry Shin, told Platts.

Intertanko, Baltic and International Maritime Council, or BIMCO, and a host of other industry bodies have now jointly submitted a proposal document to an IMO sub-committee over the issues of concern for effectively implementing the cap on sulfur emissions.

Among others, the document mentions of the impact on machinery systems, particularly the safety concerns that may arise from the use of new sources of fuels and blends, and a verification mechanism "to ensure a level commercial landscape," and delivery of compliant fuels on ships.

"Ships cannot ascertain the sulfur level of fuels being delivered to [them] prior to or during bunkering operations; non-conformity is discovered only days after bunkering," the document said.

Not all ports will be ready to supply 0.5% sulfur fuels by 2020 and there is already a provision to allow ships which could not obtain compliant fuels, but parameters for such instances need to be formally recognized by IMO, it said.

However, ship-owners say that this can put them at a disadvantage, especially those who are scrupulously following the rule book, because ULSFs command a premium over HSFOs. The price differential between HSFO and 0.10% sulfur-content marine gas oil has typically been in the $250-$350/mt range, according to the shipping industry estimates.

ENFORCEMENT AND QUALITY

"Enforcement is [critical] to make sure that owners following the new laws are not at a competitive disadvantage to ships not using the required fuels," managing director of the Hong Kong Shipowners Association, Arthur Bowring, told Platts. The association is one of the world's largest, with its members owning and operating a fleet with a combined carrying capacity of more than 162.5 million dwt.

Questions remain as to whether the sulfur cap will be enforced effectively, as legal frameworks and detection methods remain inadequate, and fines and sanctions are currently upto the individual member countries to enforce, Banchero Costa, a Genoa-based shipping consultancy and brokerage said in a recent report.

There is also a concern that the new blends that are described in the IMO's assessment report, might not be compatible with the existing engines and fuel systems, Bowring said.

Many of the new fuels with 0.10% sulfur content that showed up in the market over the last two years are not included under the ISO standard for marine fuels, called ISO 8217, said Rauta. Since safety requires full transparency, the criteria defining any such new fuels should be fully provided and they should be inserted in the ISO 8217 series, he added.

"In 2020, the entire world will be an Emission Control Area, so there are no cheap options left," the chief shipping analyst at BIMCO, Peter Sand, told Platts. BIMCO is the world's largest international shipping association, with more than 2,200 members globally.

SCRUBBERS VS FUELS

"If the operator also owns the ship and pays for bunker fuel, investing in a scrubber is the most economical option," Sand said. Scrubbers are exhaust gas cleaning systems that remove sulfur from fuel, thus enabling continuous use of HSFO, and are permitted under the IMO rules but have related technical and environmental challenges.

Ship-owners can recover investment costs sooner or later, Sand said, adding that "if the prices of IMO-compliant fuels go through the roof in early-2020 and the world is awash with HSFO, it will be a matter of months before a scrubber investment is recouped."

Ship-owners' concern will be the upfront cost of around $3 million-$4 million with no guarantee that it will be needed in case the spread between marine gasoil and HSFO stays very narrow.

"Keep in mind that if today a five-year old Supramax is worth some $14 million, to spend at least $3 million-$5 million on a scrubber is quite a big investment," said Ralph Leszczynski, research director at Banchero Costa.

"I [think] we will get into a bit of a rush to install scrubbers towards 2019, when it sinks in that the rules are indeed going to be implemented and distilled fuels really do cost a lot more than HSFO. I think, for the moment, 95% of people will go for either distilled fuels or scrubbers," he said.

Intertanko's Rauta points out that if a ship is running on 50 mt fuel/day and is on sea for 200 days/year, while the ULSFs' premium to HSFO is $200/mt, the extra cost of fuel for the ship-owner will be $2 million/year. Depending on the price one pays to retrofit a scrubber, but assuming it to be $2 million-$4 million, the owner can recover it within one or two years of operations, he said.

In 2012, Intertanko developed a calculator to assist ship-owners in doing a cost-benefit analysis of installing a scrubber versus using ULSFs in the Emission Control Areas.

"LNG as fuel is also an option, but not a cheap one; retrofitting a ship to use LNG [may not be] economically viable today," said Rauta.

Currently, only a miniscule number of ships, around 100 out of the global merchant fleet population of more than 85,000, are running on LNG, though newbuilding orders are on the rise and may rise exponentially over the next decade.

"LNG has the main problem of limited availability at ports. So if you trade a Supramax bulk carrier or an Aframax tanker, you are not going to cut yourself off from the possibility of bunkering at most ports in the world," added Leszczynski.

However, things are not hunky dory for scrubbers either. The wash-water of a scrubber is an acid which is very corrosive. Ship-owners have options to invest in hybrid scrubbers that have closed loop for operations in ports that do not allow direct discharge of wash-waste.

"There are also challenges in disposing solid waste ashore if closed-loop scrubbers are used, and they may be a preferred option only for a small, and perhaps specialized, portion of the fleet, unless the ULSFs are in shortage and very costly," said HKSOA's Bowring.

Rauta suggests a blend option. It would be cheaper to operate the open-loop scrubber on high seas and switch to ULSFs in specific waters where their use is restricted, he said.

Ship-owners can reconfigure the fuel system of ships so that the operations of ULSFs and HSFOs are segregated and the fuel switch is managed to maximize the use of scrubbers and minimize that of expensive IMO-compliant fuels, he added.

Another interesting dimension of the entire initiative is that now new ships will be ordered which must be able to run on different type of fuels though the shipyards are not regulated by IMO.

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Japan considers buying more U.S. energy as Abe prepares to meet Trump

Japanese Prime Minister Shinzo Abe is considering increasing energy imports from the United States, two sources familiar with the plan told Reuters, as he prepares to meet President Donald Trump, who has complained about Japan’s trade surplus.

Japan is putting together a package of plans for Japanese companies to invest in infrastructure and job-creation projects in the United States for Abe to take to the Feb. 10 meeting with Trump in Washington.

Another idea is to offer to increase liquid natural gas (LNG) imports from the United States, a source in the ruling coalition told Reuters.

Another option, if Abe determines that Trump is most concerned about the trade gap, is to increase imports of U.S. shale oil or gas on top of the investment package, according to a top executive at a major Japanese corporation who is close to Abe.

Japanese officials have been scrambling to respond to Trump’s scattershot comments since he took office.

He has threatened to impose a tax on car imports from Mexico, criticised Japan’s trade gap with the United States and most recently accused Japan, along with China and Germany, of devaluing their currencies to the detriment of U.S. companies.

“(Abe) wants to know what’s the most important thing for Trump,” said the executive, who declined to be identified.

“If it is the trade surplus that Trump cares the most about, for instance, then we could come up with a few possible solutions,” including importing more U.S. shale oil or gas.

Abe’s approach toward Trump would be “not accommodating, not opposing”, he said.

Utilities would be resistant to buying more U.S. shale gas because they have already committed to buying large amounts and Japan’s demand for energy is falling, an executive at a Japanese gas importer told Reuters on condition of anonymity.

Prices for LNG in Asia have fallen by almost a fifth this year amid a supply glut.

Japan is the world’s biggest buyer of the gas cooled to liquid form for transport on ships and takes in nearly a third of global shipments.

Once seen as a panacea for Japan’s energy crisis after the Fukushima nuclear disaster in 2011 led to the shutdown of most reactors in the country, U.S. shale gas is now just one of many options for Japan to meet its needs.

Japan took in its first shipment of shale gas in liquid form this month and more shipments are likely to come as more export terminals start shipments this year and next.

The Yomiuri newspaper said Abe’s growth and jobs initiative would include a plan for Japan and the United States to jointly develop a $450 billion “infrastructure market”, into which the Japanese government and companies would invest $150 billion over 10 years.

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Saudi Aramco likely to list on multiple exchanges at same time: minister

Saudi Aramco is likely to list its shares simultaneously on more than one exchange but this is still under evaluation, Energy Minister Khalid al-Falih said on Thursday.

Asked by reporters if Aramco would list first on the Saudi bourse and then on another exchange abroad, Falih said: "It will probably be done concurrently, but we have not announced. We are evaluating. All our options are open."

The planned listing next year of up to 5 percent of Aramco, expected to be the world's biggest initial public offer of shares, is a centerpiece of the Saudi government's plan to diversify the economy beyond oil.

Did this financier just call the end of the mining rally?

After four-plus years of declines, 2016 was a comeback year for the mining industry – with only a couple of exceptions, energy, metal and mineral prices rallied strongly last year.

The turnaround in the sector has convinced at least one private equity firm that it may be time to lock in some profits. Reuters reports the Orion Mine Finance Group is in talks to sell a portfolio of 87 royalty, streaming and offtake assets.

Looks like harvest time came early

The agreements cover gold, silver, base metals and diamonds across 16 countries and could fetch as much as $1 billion:

"Our fund has a seven-year life. At the end of 2016 we were done with investments. We are now in harvest mode," [Orion portfolio manager Douglas] Silver said when asked why Orion was selling the portfolio. He said the sales process was launched at the beginning of January.

The last time a large royalty and streaming portfolio was put on the market was in 2010 when Orion sold International Royalty Corp to Royal Gold, Silver said.

The exclusive report notes a long list of possible suitors including Franco-Nevada, Silver Wheaton, Sandstorm Gold, Osisko Gold Royalties and Triple Flag, a new mining financing firm founded by former Barrick Gold finance chief Shaun Usmar.

Contrarian investment

At the end of 2015, beginning of last year when metals and minerals were making multi-year lows, and commodity asset managers and banks' trading desks were closing Orion launched a new hedge fund to trade industrial and precious metals.

The peak price cycle was in 2011 and these cycles tend to last seven years

Oskar Lewnowski, the founder and chief investment officer of Orion told Bloomberg at the time "there are three factors driving commodities: momentum-driven financial flows, physical fundamentals and macro events":

"For a long time, metals were driven by financial flows, be it mining-orientated banks, commodity hedge funds, CTAs [Commodity Trading Advisors] and even retail equity investors," Lewnowski said in an interview in London.

"With those guys out, we are back to fundamentals. And that’s an environment in which we can do well."

Lewnowski, which spun Orion out of his Red Kite fund in 2013 to invest in junior mining, was also willing to put a date on a turnaround:

"The turnaround is going to come in 2018," Lewnowski said. "The peak price cycle was in 2011 and these cycles tend to last seven years."

Looks like harvest time came early.

And for those still heavily invested in mining and metals, let's hope the timing of Orion's off-load is not an indication that the rally has peaked.

Global energy implications of Tillerson as top US diplomat

Former ExxonMobil CEO Rex Tillerson was confirmed as US secretary of state Wednesday by a 56-43 Senate vote.

Tillerson's statements during the nomination process signal how he might handle diplomatic relations and how those decisions could impact upstream oil and gas activity, international pipelines, nuclear energy and other commodity issues around the world. He likely takes office with more knowledge of global energy than any of his predecessors.

Related: Find more content about Trump's administration in our news and analysis feature.

Highlights of Tillerson's energy-related comments at his January 11 confirmation hearing:

RUSSIA SANCTIONS

Tillerson said recent Russian actions have "disregarded American interests," but the US must keep an "open and frank dialog" with Moscow regarding its ambitions. He said sanctions remain a powerful, important tool of US foreign policy to prevent countries or individuals from taking bad actions or to punish them after the fact.

"We need a strong deterrent in our hand," he said.

Related: Jason Bordoff, founding director of Columbia University's Center on Global Energy, talks to the Capitol Crude podcast about what foreign relations will look like with former ExxonMobil CEO Rex Tillerson heading the State Department and more.

IRAN NUCLEAR DEAL

Tillerson said US/EU sanctions against Tehran were "extraordinarily effective because others joined in."

As for the 2015 deal that lifted sanctions on Iran's oil sector in exchange for nuclear concessions, Tillerson said he shared Trump's view that the agreement needs a "full review" to determine if Iran is meeting its obligations. "No one disagrees with the ultimate objective that Iran cannot have a nuclear weapon," he said. "The current agreement does freeze their ability to progress but it does not ultimately deny them the ability to have a nuclear weapon. My understanding is the current agreement for instance does not deny them the ability to purchase a nuclear weapon."

SOUTH CHINA SEA

Tillerson said China's island building in the South China Sea and declaration of control of airspace in waters over the disputed Senkaku/Diaoyu islands amounted to "illegal actions."

"Building islands and then putting military assets on those islands is akin to Russia's taking of Crimea," he said. "It's taking of territory that others lay claim to."

Tillerson said $5 trillion in trade flows through those waters, making the situation a threat to the entire global economy "if China is allowed to somehow dictate the terms of passage through these waters."

When asked if he would support a more aggressive posture in the South China Sea, Tillerson said: "We're going to have to send China a clear signal that first, the island-building stops, and second, your access to those islands also not going to be allowed."

US OIL, GAS EXPORTS

Senator John Barrasso, Republican-Wyoming, asked whether the Nord Stream-2 pipeline between Russia and Germany would undermine Western sanctions by making Europe more dependent on Russia.

Tillerson did not answer the question directly but said rising US oil and LNG exports will help allies.

"The more US supply, which comes from a stable country that live by our values, we can provide optionality to countries so that they cannot be held captive to a single source or to a dominant source," he said.

"From a policy standpoint, it's engaging with countries to make sure they understand they have choices and what those choices are. And what can we do in foreign policy to help them gain access to multiple choices so they're not captive to just one or a dominant source."

US OIL IMPORTS

Senator Ed Markey, Democrat-Massachusetts, asked if the US should work to reduce oil imports from Saudi Arabia and elsewhere in the Mideast, and whether that would enhance the secretary of state's foreign policy position in the region.

Tillerson disagreed. "Once a barrel of oil is loaded on a tanker, a barrel of oil is a barrel of oil," he said. "The end consumer doesn't really care where that barrel of oil came from because it's going to be priced in a global market. As long as they have free access to the barrels, and they have the ability to shop around for barrels. That is what's most supportive of their economic activity."

Tillerson said he supports bolstering US energy security but has never supported energy independence, pointing to Canada as a major supplier of oil imports.

EXXONMOBIL TIES

Senator Tom Udall, Democrat-New Mexico, asked how Tillerson would navigate potential conflicts of interest given ExxonMobil's work with governments all over the world. For example, he said ExxonMobil was asking for tax dollars back from Australia, Equatorial Guinea, Malaysia, Nigeria, Qatar, Russia and the UK.

Tillerson said he does not expect to take calls from any business leaders. "In my prior role, I never called on the secretary of state directly. I called on the deputy often or the missions, primarily the ambassadors."

He said he would adhere to a statutory recusal period for any State Department matters that deal directly with ExxonMobil.

"Beyond that, though, in terms of broader issues dealing with the fact that it might involve the oil and natural gas industry itself, the scope of that is such that I would not expect to have to recuse myself," he said.

CLIMATE CHANGE

Tillerson said the "risk of climate change does exists, and the consequences of it could be serious enough that action should be taken." But he sparred with several Democratic senators about its link to human activity and whether addressing it should be a State Department priority.

"The increase in greenhouse gas concentrations in the atmosphere is having an effect," he said. "Our ability to predict that effect is very limited."

Tillerson said the US should keep a seat at the table of global climate talks to understand the impacts on Americans and US competitiveness.

CARBON TAX

Tillerson said a carbon tax represents the best option for reducing carbon emissions. He said he came to the conclusion at ExxonMobil while Congress was considering a cap-and-trade approach, "which in my view had not produced the result that everyone wanted in Europe."

A carbon tax represents, Tillerson said, a better solution if it has two features: That it is applied uniformly, replacing a hodgepodge of regulatory schemes across the country; and that it is revenue-neutral.

"All the revenues go back out into the economy through either reduced employee payroll taxes, because there will be impacts on jobs," he said. "So let's mitigate that by reducing the impact, by putting it back into the economy. So none of the money is held in the federal treasury for other purposes."

U.S. factory, private payrolls data point to firming economy

U.S. factory activity accelerated to more than a two-year high in January amid sustained gains in new orders and raw material costs, pointing to a recovery in manufacturing as domestic demand strengthens and the drag from low oil prices ebbs.

Other data on Wednesday showed private employers boosted hiring last month. While construction spending slipped in December, the underlying trend remained strong. The signs of strength in the economy at the start of the year were acknowledged by the Federal Reserve's policy-setting committee.

At the end of its two-day meeting on Wednesday, the Fed said it expected that economic activity would expand at a "moderate pace," and the labour market strengthen "somewhat further."

The U.S. central bank, which has forecast three rate hikes this year, kept its benchmark overnight interest rate unchanged in a range of 0.50 percent to 0.75 percent. The Fed increased borrowing costs in December.

"The economy is off to the races with the wind at its back. The Fed will lift rates three times in 2017 for sure, and maybe they might need to add a rate hike or start the year earlier with a policy firming in March," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The Institute for Supply Management (ISM) said its index of national factory activity increased 1.5 percentage points to a reading of 56.0 last month, the highest since November 2014 when oil prices started collapsing.

A reading above 50 indicates an expansion in manufacturing, which accounts for about 12 percent of the U.S. economy. Some of the increase likely reflects a surge in business confidence following last November's election of Donald Trump as president.

Trump has pledged to cut taxes and reduce regulations. The business mogul-turned politician, who was sworn in as president on Jan. 20, has yet to offer more details about the anticipated fiscal stimulus package.

Manufacturers' comments on business conditions last month ranged from "good" to "stronger." Some described demand as "very" steady and others reported that sales bookings were "exceeding expectations."

The ISM's production sub-index increased 2.0 percentage points and a gauge of new orders edged up 0.1 percentage point, reaching its highest level in just over two years.

A measure of factory employment jumped 3.3 percentage points to its highest level since August 2014, suggesting factory payrolls likely rose in January for a second straight month.

Manufacturers reported paying more for raw materials. That was the 11th consecutive monthly increase, indicating inflation pressures at the factory gate could be building up. The ISM's prices index jumped 3.5 percentage points in January to its highest level since May 2011.

The dollar rose against a basket of currencies on the data, but gave up some the gains following the Fed's rate decision. Prices for U.S. government bonds fell. U.S. stocks were trading slightly higher, reversing earlier losses.

"If higher prices in the goods-producing sector were sustained, this would likely help reassure Fed officials that inflation will reach and maintain its two percent target," said John Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina.

"However, the strong dollar will likely help keep a lid on inflation."

MANUFACTURING RECOVERING

A collapse in oil prices in 2015 and a surge in the dollar weighed on manufacturing for much of last year, with most of the pain coming through sharp cutbacks in business spending on equipment. Oil prices have since risen above $50 per barrel, lifting some of the fog off manufacturing.

The manufacturing rebound was also underscored by a separate survey on Wednesday from data firm Markit.

The government reported last Friday that business spending on equipment increased at a 3.1 percent annualized rate in the fourth quarter, the first rise in over a year.

January's data so far suggests that the economy is poised for an acceleration after gross domestic product increased at a 1.9 percent annualized rate in the fourth quarter. The deceleration from the third quarter's brisk 3.5 percent pace reflected a wider trade deficit.

Separately on Wednesday, the ADP National Employment Report showed private employers added 246,000 jobs in January, up from 151,000 in December. The report, jointly developed with Moody's Analytics, came ahead of the Labor Department's more comprehensive employment report on Friday, which includes both public and private sector payrolls.

The ADP report has a spotty record predicting the private payrolls component of the employment report because of methodology differences. Still, economists said the ADP report and the jump in the factory jobs measure of the ISM survey raised the possibility that January nonfarm payrolls could beat expectations.

"While we wouldn't dismiss the strength of the ADP number entirely, we would treat it with some caution, particularly in January," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

According to a Reuters survey of economists, nonfarm employment probably rose by 175,000 jobs last month, picking up from the 156,000 jobs added in December.

A third report from the Commerce Department showed construction spending slipped 0.2 percent in December after shooting up 0.9 percent in November. Construction spending increased 4.2 percent from December 2015.

French Markets Slump As Le Pen Gains Traction

After a turbulent week for the French Presidential front-runners, the latest polls show far-right and anti-EU candidate Marine Le Pen gaining traction.

Le Pen has the younger vote...And as Bloomberg points out, markets are starting to take notice.

The premium investors demand to hold French bonds over bunds has risen to the highest since 2014, and the country’s stocks have fallen to at least a 30-year relative low against their German counterparts.

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EIA: NatGas-Fired Electric Plants Adding 36.6 GW Next 2 Yrs

As MDN has covered (shouted) for several years now: natural gas-fired electric plants are a really big deal. The conversion from using coal (and some other forms) to natgas to generate electricity is happening at an increasing rate. And those electric generating plants use A LOT of natgas–meaning new markets for drillers.

Here’s one more bit of evidence that natgas-fired plants are a big deal. According to our favorite government agency, the U.S. Energy Information Administration, the electricity industry is planning to increase natgas-fired generating capacity by 11.2 gigawatts (GW) in 2017 and 25.4 GW in 2018 (for a total of 36.6 GW) based on information reported to EIA. That’s enough to power something like 26 million homes! If all these plants come online as planned, annual net additions in natural gas capacity would be at their highest levels since 2005.

On a combined basis, these 2017–18 additions would increase natural gas capacity by 8% from the capacity existing at the end of 2016…

Saudi Arabia introduces first tax in attempt to reduce deficit

Falling oil revenues have led Saudi Arabia to put an end to tax-free living in the country, as it attempts to reduce its huge budget deficit of $97bn by introducing a 5% value added tax on certain goods.

The Saudi cabinet agreed the deal with other Gulf nations as the slump in oil prices hits the profits of countries in the region.

The official press agency in Saudi Arabia said that the government "decided to approve the unified agreement for value-added tax", and that it would be put forward for royal decree.

The International Monetary Fund had previously recommended the introduction of taxes in the Gulf states in order to diversify their revenue streams to cope with the low prices of the commodity.

Saudi citizens and residents have lived in a tax-free environment thanks to a heavily subsidised system, but the kingdom's government has begun to take steps to address its deficit, which had been spiralling out of control.

The country's budget surplus has been as high as 20% of its overall GDP, which is double that of the UK and the US at the height of the global financial crisis in 2008/2009.

Major construction projects have been put on hold, and cabinet ministers have had their salaries cut as they attempt to bridge the deficit, while Saudi Aramco, the world's biggest oil-producer, is being prepared for a flotation in 2018.

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Consol Energy plans to sell or spin-off coal business

Coal and natural gas producer Consol Energy Inc broke even on an adjusted basis in the fourth quarter, and said it planned to sell its coal business or spin it off to shareholders.

The Pittsburgh-based company, which spun off some of its coal assets to form CNX Coal Resources LP in 2015, has been focusing on its oil and gas business.

The company said on Tuesday it was looking to separate its coal unit from its oil and gas business as early as 2017.

Consol sold its Buchanan Mine in southwestern Virginia and some other metallurgical coal reserves to a privately held company for about $420 million last year.

The company, which gets most of its profits from the Marcellus shale in Southwest Pennsylvania and West Virginia and the Utica shale in Ohio, said total revenue from its exploration and production business rose 5.6 percent to $280.1 million in the fourth quarter ended Dec. 31.

Consol's loss from continuing operations was $321.2 million, or $1.42 per share, in the quarter, compared with a profit of $45.3 million, or 18 cents per share, in the year-earlier period.

Excluding a $237 million loss on commodity derivatives and other items, the company broke even on a per-share basis. The average analyst estimate was 1 cent per share, according to Thomson Reuters I/B/E/S.

Reflation trade as a fund.

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Trump: Dalio sours, consensus mixed.

Ray Dalio Sours on Trump After Immigrant Ban, Joining Soros

Billionaire Ray Dalio’s honeymoon with President Donald Trump is looking to be short lived.

Dalio, who in November was bullish on the incoming president’s ability to stimulate the economy, is now saying he’s more concerned that the damaging effects of Trump’s populist policies may overwhelm the benefits of his pro-business agenda.

“We are now in a period of time when how this balance tilts will be more important to the economy, markets, and our well-beings than normally dominant drivers such as central bank policies,” Dalio and co-Chief Investment Officer Bob Prince said in Bridgewater Associates’ “Daily Observations” note to clients on Tuesday.

Dalio, who runs the world’s largest hedge fund, is souring on the new president after he banned visitors from seven mostly Muslim countries, igniting protests nationwide, and proposed a border tax on Mexican goods. Earlier this month, Dalio said it remained to be seen whether Trump is aggressive and thoughtful, or aggressive and reckless. Dalio and Prince said so far they haven’t seen much thoughtfulness in Trump’s policy moves.

Money managers at hedge fund Carlson Capital take an even more negative view of Trump’s nationalist agenda. His policies may have dire consequences for the U.S. and global economy and his attempts to tax imports and subsidize exports could touch off a depression, according to their quarterly letter to clients.

“If the border adjustment mechanism is implemented as proposed we think it will cause a global depression and a major equity market decline,” Richard Maraviglia and Matt Barkoff said in the letter. “It is still unclear whether it will happen but at the very least we expect that U.S. trade policy will put downward pressure on global growth.”

Billionaire George Soros, who had backed Democrat Hillary Clinton in last year’s election, said in January that the stock market rally since Trump’s win, spurred by his promises to slash regulations and boost spending, will come to a halt. He called Trump a “con man” and a would-be dictator.

Some managers are more sanguine. Kyle Bass, founder of Hayman Capital Management, said Trump’s policies won’t be a “globalist nightmare” and that

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Strike cuts French electricity production by nearly 4 GW

A strike by electricity and gas sector workers in France has cut nuclear and hydro power production by nearly 4 gigawatt, French grid operator RTE and utility EDF said on Monday.

RTE said on its website that unplanned outages due to the strike had cut output at eight of France's 58 nuclear reactors, while EDF said on its website that the strike had cut hydropower production by 656 megawatts.

RTE said the eight reactors were expected to be back on full capacity by Tuesday evening.

French energy sector unions called for a strike in the gas and electricity sector to protest a wage freeze in 2017, CGT trade union said in a statement earlier on Monday.

A new Rasmussen Reports national telephone and online survey finds that 57% of Likely U.S. Voters favor a temporary ban on refugees from Syria, Iraq, Iran, Libya, Somalia, Sudan and Yemen until the federal government approves its ability to screen out potential terrorists from coming here. Thirty-three percent (33%) are opposed, while 10% are undecided.

Similarly, 56% favor a temporary block on visas prohibiting residents of Syria, Iraq, Iran, Libya, Somalia, Sudan and Yemen from entering the United States until the government approves its ability to screen for likely terrorists. Thirty-two percent (32%) oppose this temporary ban, and 11% are undecided.

This survey was taken late last week prior to the weekend protests against Trump’s executive orders imposing a four-month ban on all refugees and a temporary visa ban on visitors from these seven countries.

Republicans take first steps to kill Obama-era regulations

Republicans on Monday continued their drive to loosen U.S. regulation, taking the first step to kill five Obama-era rules on corruption, the environment, labor and guns under the virtually untested Congressional Review Act.

The House Rules Committee sent to the full chamber three regulations enacted under former President Barack Obama, a Democrat, to ax.

They were the Stream Protection Rule, the Securities and Exchange Commission's "resource extraction rule," and one on gun buying.

Republicans put as much urgency on limiting what they consider over-regulation that stifles economic growth as they do on overhauling the tax code and dismantling the Affordable Care Act, according to House Majority Leader Kevin McCarthy.

This is the first time the Republican-led House of Representatives has targeted specific rules since convening on Jan. 3. Earlier this month it passed bills to limit regulatory agencies and Republican President Donald Trump is cutting regulation through executive orders.

Under the law, Congress can use simple majority votes to stop recent regulations in their tracks. Agencies cannot create a new rule to replace any part of an overturned regulation. Timing in the law means any rules enacted in the final months of Obama's administration are eligible for axing.

The law has been used effectively only once, in 2001. Both sides consider this week a test of its powers.

On Tuesday the Rules Committee will send two more regulations to the full chamber, which is expected to vote to kill all five on Wednesday and then hand them off to the Senate.

Senate Republicans on Monday prepared to act quickly after the House vote, with Majority Leader Mitch McConnell and Environment Committee Chairman James Inhofe introducing companion measures on the stream and extraction rules.

The Interior Department took years to craft the stream rule, hoping to prevent coal-mining waste from contaminating water sources in areas near mountain-top removal mining sites. Critics say it is unnecessary and goes too far, wiping out jobs and usurping state rights.

The extraction rule is required in the 2010 Dodd-Frank Wall Street reform law, but was only approved six years later this summer. It requires companies such as Exxon Mobil Corp to state publicly how much they pay governments in taxes and other fees. Opponents say it hurts U.S. energy companies, while human rights groups argue it reduces corruption.

Meanwhile, the gun rule requires extra scrutiny of purchasers who receive Social Security benefits and also have a history of mental illness.

Liberal groups are outraged by the rollbacks, but their traditional allies, Democratic lawmakers, have limited means to stop them in the Republican-dominated Congress.

Those on the Rules Committee said important protections were being rushed to the chopping block and pleaded for hearings on the regulations, to no avail.

This week House Democrats and activists are planning to rally the public, hoping to persuade Republicans to vote no. Senate Democrats cannot filibuster the measures but congressional aides expect them to slow the process by taking the full five hours they are allowed to speak against each measure on the chamber's floor.

GOP's clever tax plan managed to baffle everyone

House Republicans, led by Paul Ryan, have been trying to give President Donald Trump an outlet for his protectionist impulses while avoiding any increase in tariffs. They hit on a clever plan — but on Thursday a series of remarks by Trump spokesman Sean Spicer and reports by journalists showed that it might have been too clever.

The House Republican idea is to cut the corporate-income tax to 20 percent and modify it. Crucially, the new corporate tax would have a feature in common with most of the value-added taxes (VATs) that other countries use: It would apply to imports but not exports. The idea is to tax all domestically consumed goods, whether those goods are produced here or abroad.

This "border adjusted" tax wouldn't be a tariff, because it wouldn't discriminate between imports and goods produced in America for Americans. It therefore wouldn't bias a consumer's choice between a domestically produced good and a competing import.

Some Republicans think that other countries' VATs help to reduce their trade deficits and that we could reduce ours by adopting a border-adjusted tax. They are probably wrong about that: Most economists believe that when countries adopt such taxes, their currencies appreciate and their total imports and exports end up roughly unchanged. (How fast this happens is an open question.)

But since we import more than we export, applying taxes to imports but not to exports also raises money for the federal government. The economist Martin Feldstein estimates that border adjustment could raise $120 billion a year. That's another reason House Republicans like it: They could use the revenue to offset some of the tax cuts they want to enact.

The best argument for border adjustment is that it is a way for free traders to tell Trump that they are going to discourage imports and encourage exports, while at the same time they avoid outright protectionism. That rationale depends on Trump's not quite grasping what's going on.

Problem No. 1 with this plan is that Trump's understanding of it is a little too poor. He recently said that border adjustment was "too complicated" and sounded as if it could be a "bad deal" — sounding as if he thought it had something to do with international trade negotiations, when it is actually something Congress could simply legislate. But later he said it would be an option.

On Thursday, Trump spokesman Sean Spicer introduced more confusion. He told reporters that it was possible to make Mexico pay for the border wall by "using comprehensive tax reform as a means to tax imports from countries that we have a trade deficit from, like Mexico." He said, "That's really going to provide the funding."

Spicer didn't describe the plan correctly. The reform in question would tax all imports, not just imports from countries with which we have a trade deficit. And reporters garbled things further. The New York Times, for example, erred early on in reporting that the tax would apply to all countries but that "initially" it would apply just to Mexico. Spicer had mentioned Mexico because he was making a point about the border wall, not because it would be singled out by the tax.

And then Spicer explained that the administration wasn't, after all, endorsing the border-adjustment idea, which he said was just one of several options under consideration. In making this clarification, he repeated his misleading assertion that border adjustment would tax imports from countries with which we have a trade deficit.

Meanwhile, Rep. Chris Collins, R-New York, a critic of free trade, went on MSNBC to defend border adjustment. He called it a "surcharge" on imports that would improve our competitiveness.

It's not a surcharge on imports, since it's the same tax that would be applied to American companies selling to Americans. It probably wouldn't change the trade balance, either, because it would cause the dollar to appreciate. Supporters of free trade, meanwhile, were aghast at what they took to be another sign of protectionism coming from the Trump administration.

Border adjustment may be a good idea. It has some very smart supporters. But the list of people who do not understand it currently includes congressional advocates of it, critics of it, some journalists reporting on it, the president who would have to sign it into law and his spokesman. Some of this misunderstanding is the result of the special chaos that policy formation in this administration involves.

But maybe Trump was right the first time, and this idea is indeed too complicated for our political system to handle.

U.S. GDP Grew 1.9% in Fourth Quarter

The U.S. economy decelerated in the final three months of 2016, returning to the familiar pace of growth that has marked the long but lackluster postrecession expansion.

Gross domestic product, a broad measure of the goods and services produced across the economy, expanded at an inflation and seasonally adjusted annual rate of 1.9% in the fourth quarter, the Commerce Department said Friday. That was a slowdown from the third quarter’s 3.5% growth rate, which had been the strongest reading in two years.

Economists surveyed by The Wall Street Journal had expected a 2.2% growth rate in the final three months of 2016.

The economy’s expansion last quarter reflected decent consumer spending, a rebound for home-building and stronger business investment in both new equipment and research-and-development projects.

Two volatile categories buffeted the headline growth figure: Private inventories contributed a full percentage point to the fourth quarter’s growth rate, but a wider trade deficit subtracted 1.7 percentage points.

Economic output also rose 1.9% in the fourth quarter compared with a year earlier, matching its growth during 2015 and close to the 2.1% average annual growth rate since the recession ended in mid-2009. The current expansion has lasted longer than the historical average, but its average rate has been the weakest since at least 1949.

That unspectacular trend may continue in the coming years. The nonpartisan Congressional Budget Office this week projected GDP would grow 2.3% in 2017 and 1.9% in 2018. The agency said structural trends, including baby-boomer retirements, are driving a slowdown in economic growth compared with past decades.

Nick Fanandakis, DuPont Co.’s chief financial officer, told analysts Tuesday that the chemicals company expects stronger U.S. growth in the coming year, “but we remain cautious amid economic uncertainty and the stronger dollar.” A strong dollar can hurt manufacturers by making U.S. exports more expensive for foreign customers.

President Donald Trump, who took office this month, has set a goal of generating 4% annual growth by overhauling the tax code and rolling back federal regulations, among other measures. Some forecasters have raised their projections for U.S. growth this year and in 2018 in anticipation of tax cuts and infrastructure spending.

“We look at the talk of stimulus with some anticipation of a positive boost to the economy,” Texas Instruments Inc. CFO Kevin March told analysts this week. “But frankly we think it’s probably too early to figure out what that might be and how it might manifest itself.”

Economists have warned it will be difficult to significantly boost the economy’s sustainable growth rate due to projected slow growth in the size of the workforce and the recent sluggish trend for labor productivity.

Economic growth “has been restrained in recent years by a variety of forces depressing both supply and demand, including slow labor force and productivity growth, weak growth abroad and lingering headwinds from the financial crisis,” Federal Reserve Chairwoman Janet Yellen said last week. “Although I am cautiously optimistic that some of these forces will abate over time, I anticipate that they will continue to restrain overall growth over the medium term.”

But in the short term, GDP growth fluctuates from quarter to quarter due to changes in household outlays, government spending, trade patterns and other factors.

Friday’s report showed consumer spending, which accounts for more than two-thirds of overall economic activity, rose at a 2.5% annual rate in the fourth quarter compared with 3.0% growth in the third quarter. Outlays were led last quarter by a 10.9% growth rate for spending on durable goods such as automobiles, the third straight quarter of strong growth in the category.

Business investment continued to pick up in late 2016. Fixed nonresidential investment increased at a 2.4% annual pace in the final three months of the year, the third consecutive quarter of growth. Companies pulled back last quarter on structures spending, but ramped up expenditures on equipment and intellectual property products like software and R&D.

Net exports subtracted 1.7 percentage points from the fourth quarter’s GDP growth rate, reflecting a drop in exports and a large rise in imports. It was the largest trade-related drag on overall growth since the second quarter of 2010. A temporary surge in soybean exports during the third quarter had helped narrow the overall trade gap, and net exports boosted the headline GDP growth rate that quarter by 0.85 percentage point.

The housing sector rebounded last quarter, with residential investment growing at a 10.2% annual pace following two straight quarters of decline. Mortgage rates remain low but have risen in recent months, posing a potential headwind for buyer demand in 2017.

Government spending supported growth in late 2016, rising at a 1.2% pace in the fourth quarter. The federal government reduced military spending compared with the third quarter, but state and local governments ramped up their investment spending.

Private inventories added 1.0 percentage point to last quarter’s GDP growth rate, after contributing 0.49 percentage point to the third quarter’s growth rate. Previously, inventories had been a drag on growth for five consecutive quarters.

Inflation picked up in the fourth quarter, partly reflecting the recent rise in gasoline prices. The Fed’s preferred price gauge, the personal consumption expenditures price index, rose an annualized 2.2% in the fourth quarter. Excluding the often volatile categories of food and energy, so-called core prices rose at a more modest 1.3% pace.

The Fed has set a goal of 2% annual inflation, and the U.S. central bank said in mid-December it expected long-subdued U.S. price growth would firm to that level “over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.”

Republicans Warn No Trump Tax Reform Until Spring 2018

The worst news for Trump's Wall Street supporters is neither the Obamacare delay, nor infrastructure spending hiatus, but his tax reform, arguably the single biggest driver behind the powerful market rally. Alas, as Reuters reports, things here too may be about to get indefinitely delayed into the future, to the point where the market may finally start asking itself if it has gone up too high, too fast.

The reason for this was revealed last week in Philadelphia, when the reality of Trump's aggressive fiscal spending agenda hit the brick wall of Congressional Republicans. According to Reuters, "as congressional Republicans gathered for an annual policy retreat in Philadelphia on Wednesday, the 100-day goal morphed into 200 days. As the week wore on, leaders were saying it could take until the end of 2017 - or possibly longer - for passage of final legislation."

And while Trump had a different idea when he spoke to lawmakers in Philadelphia, "telling them: Enough talk. Time to deliver", he may have no recourse when dealing with the bitterly polarized and fragmented House of representatives:

barely visible in Philadelphia, there are potential flashpoints of disagreement within the Republican rank-and-file in Congress as well as between Republican lawmakers and the unorthodox new president.

These include how and when to replace Obamacare if Republicans succeed in their quest to repeal it; how to revamp the multi-layered tax code, whether to build a wall on the U.S. border with Mexico and the nature of the U.S. relationship with Russia.

But the most troubling revelations was the following: "When it comes to tax reform, senior congressional aides said the spring of 2018 might be a more likely time than this year for the passage of legislation."

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Beijing smog inspectors on frontlines of war on pollution

Tougher law enforcement has reduced the number of environmental offenders in Beijing in recent years, but more companies need to adapt to the emissions standards in China's capital, its environmental inspection squad says.

Beijing has been on the frontlines of a "war against pollution" declared by Premier Li Keqiang in 2014, as part of a central government promise to reverse damage done by decades of growth, and strengthen powers to shut down and punish polluters.

With more than 500 environmental inspectors working to identify offenders, thousands of companies have been investigated and punished in the past four years.

But beyond simply enforcing standards, the squad faces the critical task of persuading more firms of the value of protecting the environment, said Wang Yankui, the chief of Beijing's central environmental inspection squad.

"The difficulty we face now is how to influence more companies to actively make improvements for the sake of environmental protection," Wang added. "Some companies have this intention, but they don't know how to do it."

Besides dealing with violators, the inspectors also keep tabs on "model" companies that have already adopted city standards.

The squad runs a hotline for city residents to report potential polluters, who could eventually join its network of identified offenders.

"If we don't obey the rules, then we might be penalized, or shut down," said Li Qiang, an official of a car finishing factory on the outskirts of Beijing, which has managed to keep pace with changing environmental standards for several years.

"As a business, survival needs profits, and profits are made under the pre-condition that we abide by the provisions or requirements of the government."

Cars, not industries, are Beijing's primary polluters, the national environmental protection bureau said this month, blaming vehicles for more than 31 percent of harmful emissions.

Authorities have responded by clamping down on the number of vehicles on the road when smog alerts are issued.

But most of the smog originates from polluting industries in surrounding provinces that must be convinced of the need to obey the law, said Greenpeace campaigner Dong Liansai.

"If we only rely on the basic law enforcement authorities and polluting companies to play some sort of cat-and-mouse game, then there may be no way of solving the current pollution problems," he added.

While many of Beijing's polluting industries have moved to other provinces, Wang said local authorities have jurisdiction and enforcement is up to them.

Some Beijing residents fear the government's environmental policies will fail if they ignore polluters in surrounding areas.

"I think (Beijing's) current policies are to treat the symptoms but not the cause," said Zhou Gesun, a technician working in the information technology industry.

There is only minor payoff from efforts such as odd and even license-number curbs on vehicle use, and halting work on construction sites, he added.

"The big factors are the areas surrounding Beijing, for instance, heavy industrial factories in Hebei. I think they should bring these factories under their control."

Besides the squads, Beijing will set up a police force to specifically target environmental offences and polluting activities including open-air barbecues and garbage and biomass burning, the capital's acting mayor, Cai Qi, said this month.

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Saudi Arabia Raises March Crude Oil Pricing for All Buyers

Saudi Arabia, the world’s largest crude exporter, raised pricing for March sales to buyers from the U.S. to Asia as output cuts by OPEC and other producers shore up oil prices.

State-owned Saudi Arabian Oil Co., known as Saudi Aramco, boosted its official pricing for Arab Light crude to Asia by 30 cents to 15 cents a barrel more than the regional benchmark, it said Thursday in an e-mailed statement. The company had been expected to increase pricing for the grade to a premium of 10 cents more than the Oman-Dubai benchmark, according to the median estimate in a Bloomberg survey of six refiners and traders.

Aramco raised pricing in Northwest Europe to the highest since 2015, except for the Heavy grade which was boosted to the highest since 2014. Pricing was increased in Asia to the highest this year. Buyers in the Mediterranean region will also see higher pricing for all grades in March.

Oil jumped 52 percent last year, its first annual gain in four years, as the Organization of Petroleum Exporting Countries took steps to limit production to eliminate a global supply glut. The group and 11 other producers, including Russia, have been meeting their collective pledge to cut output by as much as 1.8 million barrels a day, Saudi Arabia Energy Minister Khalid Al-Falih said in Vienna on Jan. 22. The cuts started last month.

“Compliance is great -- it’s been really fantastic,” Al-Falih said, after the producers met to agree on how to monitor the reductions. “Based on everything I know, I think it’s been one of the best agreements we’ve had for a long time.” Saudi Arabia’s production was below 10 million barrels a day, he said on Jan. 12. The country pumped on average about 9.98 million barrels a day last month, according to a survey compiled by Bloomberg.

Middle Eastern producers compete with cargoes from Latin America, North Africa and Russia for buyers in Asia, its largest market. Producers in the Persian Gulf region sell mostly under long-term contracts to refiners. Most of the Gulf’s state oil companies price their crude at a premium or discount to a benchmark. For Asia the benchmark is the average of Oman and Dubai oil grades.

Gasoline Tankers Dodge New York Again as Region’s Glut Returns

America’s East Coast gasoline glut is back and it’s so big that tankers bound for New York are being forced to detour mid-ocean toward other destinations.

The region’s record inventories have grown so large that at least five tankers bringing cargoes to New York in January were forced head elsewhere while en route. Ship charters show European plants directing more of what they produce to Africa. The stockpile buildup has depressed both trans-Atlantic shipping rates and refiners’ profits from making the fuel.

The increase in inventories “will keep demand for voyages into the East Coast low as the market awaits the impact of spring maintenance” at refineries, said George Los, senior tanker markets analyst at Charles R. Weber Co. in Greenwich, Connecticut.

The stockpile buildup has been caused by the lowest U.S. gasoline demand since 2012 at a time when refiners are processing more than normal. The U.S. is a common destination for Europe’s excess gasoline, with companies including BP Plc and Repsol SA among those booking seven or eight tankers a week in the spot market for the voyage. Current East Coast inventories would be enough to supply the region for almost a month, an all-time high, according to data compiled by Bloomberg.

“The concern is the PADD1 market,” Gary Simmons, senior vice president at Valero Energy Corp., said this week, referring to the East Coast. High inventories on the Gulf Coast are less problematic because improving weather will allow exports to clear supplies from that region, he said.

Gasoline inventories on the U.S. East Coast rose to more than 73 million barrels, exceeding the previous high set last July, Energy Information Administration data showed Wednesday. National stockpiles also increased. The four-week average for demand, which has declined since mid-August, dipped to about 8.2 million barrels a day, the lowest since February 2012.

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Oil edges up on threat of U.S. issuing new Iran sanctions

Oil prices edged up on Friday on news that U.S. President Donald Trump could be set to impose new sanctions on multiple Iranian entities, raising geopolitical tensions between the two nations.

Comments by Russian energy minister Alexander Novak that oil producers had cut their output in accordance with a pact agreed in December also helped support prices, analysts said.

Reuters reported on Thursday that Trump's administration is prepared to roll out new measures against more than two dozen Iranian targets following Tehran's ballistic missile test, according to sources familiar with the matter.

Moves by the U.S. to impose new sanctions on Iran is "something at the back of short-term traders' minds," said Ric Spooner, chief market analyst at Sydney's CMC Markets.

"It's on the risk radar more than it otherwise might have been," he said.

The sources, who had knowledge of the administration's plans, said the package of sanctions was formulated in a way that would not violate the 2015 Iran nuclear deal.

Supply concerns were also raised when Russia's energy minister said global oil output was cut by 1.4 million barrels per day (bpd) last month as part of the deal last year between OPEC and other producers.

"Oil markets have been supported by OPEC and as long as things hold people will look for evidence output curbs have chiseled away at inventories," Spooner said.

Novak also said Russian companies may cut oil production quicker than had been initially agreed with OPEC and that he expected the market to rebalance by the middle of this year.

Oil prices have stabilized about 15 percent higher than they were before OPEC and non-OPEC producers agreed in December to curb output, National Australia Bank said in a note on Friday.

"We now expect oil prices to average around the mid to high $50s in Q1 and Q2, before reaching the low $60s by end-2017 and stabilizing at around those levels in 2018," the bank said.

Brent prices could also come under pressure due to refinery maintenance in Europe and Asia in the first half of this year creating a situation where crude exports remain high while crude demand weakens, energy consultancy BMI Research said in a report on Friday.

Canadian Natural Resources Limited Horizon Update

Canadian Natural Resources Limited provides an operations update for Horizon Oil Sands (“Horizon”). In December 2016 the Company continued to achieve higher than expected performance at Horizon, with production averaging approximately 184,000 bbl/d of Synthetic Crude Oil (“SCO”). After the successful ramp of the Phase 2B expansion, average production in the fourth quarter of 2016 reached approximately 178,000 bbl/d of SCO, at the high end of previously issued fourth quarter 2016 Horizon production guidance. As a result of these strong operational results and cost efficiencies at Horizon, the Company realized operating costs of $22.53/bbl (US$16.89/bbl) of SCO in the fourth quarter of 2016.

Horizon continues to perform above expected design rates, with January 2017 production averaging approximately 195,000 bbl/d of SCO. As a result of this strong operational performance and realized cost efficiencies, Canadian Natural is lowering its 2017 SCO operating cost guidance by $2.00/bbl to $24.00/bbl to $27.00/bbl, including planned downtime for maintenance, turnaround and tie-in activities relating to the Phase 3 expansion.

As was previously announced, Canadian Natural continues to evaluate an opportunity to debottleneck the Horizon fractionation tower and potentially increase production by an additional 5,000 bbl/d to 15,000 bbl/d of SCO for an estimated project capital cost of $70 million. It is estimated that this opportunity would coincide with the turnaround in the third quarter of 2017, effectively increasing the planned outage from 24 to 45 days. A final decision to proceed is expected in the second quarter of 2017.

The Horizon Phase 3 expansion, which is targeted to add 80,000 bbl/d of SCO production is on schedule and on budget for commissioning and start up in the fourth quarter of 2017. The completion of the Horizon expansion provides significant sustainable zero decline production to the Company’s long-life low decline asset base.

Canadian Natural is a senior oil and natural gas production company, with continuing operations in its core areas located in Western Canada, the U.K. portion of the North Sea and Offshore Africa.

Egypt pens deals to import up to 45 LNG cargoes

The Egyptian Natural Gas Holding Company has reportedly secured between 43 and 45 LNG cargoes for delivery from March until the end of the year.

The company signed agreements to import the cargoes from Oman, Russia and France Reuters reports, citing Mohamed al-Masry, the head of EGAS.

It was reported last year that EGAS plans on spending around US$2.2 billion for LNG to be imported in 2017.

EGAS secured 60 cargoes for delivery in 2017 and 2018 through what was claimed to be the largest mid-term tender ever issued in which the company looked for 96 cargo to be delivered. Out of the 60 cargoes, only six have been set for delivery in 2018.

With the additional 43-46 LNG cargoes secured under the new deal, EGAS has now booked close to 100 LNG deliveries in 2017.

Williams Partners started operations on Gulf Trace project, a 1.2 million dekatherm per day expansion of the Transco pipeline system to serve the Cheniere’s Sabine Pass liquefaction and export terminal in Cameron Parish, Louisiana.

The Gulf Trace project allows Transco’s production area mainline and southwest Louisiana lateral systems to flow gas bi-directionally from Station 65 in St. Helena Parish, to Cameron Parish, where Cheniere’s facility is located. Cheniere has subscribed to all the firm capacity for the project.

He added that the company can take advantage of the fact that Transco pipeline passes through every U.S. state with an LNG export facility currently under construction.

Natural gas demand to serve LNG export facilities along the Transco pipeline is expected to grow by approximately 11,000 MDth/d by 2025.

In September 2016 the company filed an application seeking regulatory approval for its Gulf Connector expansion project, designed to deliver 475,000 dekatherms per day to feed two LNG export terminals in Texas, one located on the northern coast of Corpus Christi Bay in 2019, and another located on the coast of Freeport Bay in the second half of 2018.

The Gulf Trace project is part of approximately $1.6 billion in transmission growth projects Williams Partners plans to bring into service on its Transco pipeline system in 2017 that will help increase the pipeline’s capacity by approximately 3.0 million dekatherms per day. The Garden State, Dalton, Hillabee (Phase 1), Virginia Southside II and New York Bay Expansion projects are all under construction and/or expected to be placed in-service this year.

Canada: governments, First Nations pen PNW LNG monitoring agreement

An agreement on environmental monitoring of the proposed Pacific NorthWest LNG project, a first of its kind, has been signed between the government of Canada, the government of British Columbia, the Lax Kw’alaams Band and the Metlakatla First Nation.

Through this agreement, First Nations will work directly with provincial and federal authorities as part of a committee to ensure the Petronas-led Pacific NorthWest LNG project is developed in the most environmentally sustainable way possible.

The committee will enable enhanced environmental oversight of the Pacific NorthWest LNG project and the active engagement of local First Nations, a joint statement by the parties involved reads.

It will foster information-sharing and continuous environmental monitoring and oversight and also enable the Lax Kw’alaams Band and Metlakatla First Nation to provide input into the project’s environmental management plans and follow-up programs.

The committee is the product of input and feedback from Indigenous peoples regarding their desire to play an active role in monitoring the project on an ongoing basis, the statement reads.

The cooperative agreement sets out the principles, structure, and roles and responsibilities of an Environmental Monitoring Committee for the Pacific NorthWest LNG project, in British Columbia.

The Pacific NorthWest LNG project received federal environmental assessment approval in September 2016, subject to over 190 legally-binding conditions to be fulfilled by the proponent throughout the life of the project.

The Canadian Environmental Assessment Agency and BC Environmental Assessment Office remain responsible for ensuring ongoing compliance with their respective legally-binding conditions for the project.

Shell’s earnings slide by 44 pct in fourth quarter

Oil major Royal Dutch Shell posted a 44 percent drop in earnings for the fourth quarter of 2016 compared to the year-before period.

The company on Thursday reported its fourth quarter 2016 CCS earnings attributable to shareholders of $1.03 billion, 44% lower than for the same quarter a year ago and earnings of $1.8 billion.

Full year 2016 CCS earnings attributable to shareholders were $3.5 billion, an 8% decrease compared with $3.8 billion in 2015.

On a CCS basis, Shell’s 4Q 2016 earnings, excluding identified items, were $1.8bn, up 14% from $1.6bn for the fourth quarter of 2015.

Compared with the fourth quarter 2015, CCS earnings attributable to shareholders excluding identified items benefited from higher contributions from Upstream and Chemicals, partly offset by lower contributions from Refining & Trading. Operating expenses were lower, more than offsetting the impact of the consolidation of BG. Depreciation and net interest expense increased, mainly resulting from the BG acquisition. Earnings also reflected higher taxation.

The company’s revenues increased during the quarter amounting to $64.8 billion, compared to $58.1 billion in the fourth quarter of 2015.

Shell CEO, Ben van Beurden, commented: “We are reshaping Shell and delivered a good cash flow performance this quarter with over $9 billion in cash flow from operations. Debt has been reduced and, for the second consecutive quarter, free cash flow more than covered our cash dividend.

He also added: “Looking ahead, we will further focus the portfolio and strengthen the company’s financial framework in 2017. Our strategy is starting to pay off and in 2017 we will be investing around $25 billion in high quality, resilient projects.”

Capital investment for the fourth quarter 2016 was $6.9 billion. Full year 2016 organic capital investment was $26.9 billion while capital investment in 2017 is expected to be around $25 billion.

Oil and gas production for the fourth quarter 2016 was 3,905 thousand boe/d, an increase of 28% compared with the fourth quarter 2015.

China's 2016 oil demand in the red as GDP growth hits 26-year low

China's apparent oil demand slipped into the negative territory in 2016, a sharp reversal from the near 7% growth witnessed a year earlier, as the country's slowest GDP growth in 26 years slashed appetite for industrial and transportation fuels in Asia's biggest oil consuming nation.

A near 25% growth in LPG demand and close to double-digit growth in naphtha and jet fuel demand failed to offset the impact of sharp falls in gasoil and fuel oil consumption, pulling down overall oil demand in 2016 by 0.8% to 11.11 million b/d, compared with a growth of 6.6% in 2015.

The world's second biggest oil consumer saw a sharp slowdown in demand after GDP growth slowed to 6.7% in 2016 from 6.9% in 2015 and 7.3% in 2014. GDP growth was 3.9% in 1990.

Although GDP growth was only 0.2 percentage points lower than in 2015, fixed asset investment growth slowed to 8.1% year on year in 2016 from 10% in 2015.

Industrial production grew 6% in 2016, also lower than the 6.1% growth seen in 2015, data from the National Bureau of Statistics showed.

These factors together pulled down gasoil consumption in the transportation and construction sectors, resulting in a 5.4% year-on-year fall in apparent demand for the fuel, which accounts for around 30% of China's overall oil products consumption.

Beijing does not release official data on oil demand and stocks. Platts calculates apparent or implied oil demand by taking into account official data on monthly throughput at Chinese refineries and net product imports. But the official data fails to reflect some of the crude throughput increases from the new crude oil consumers -- the independent refineries.

If output from the independent sector is taken into account, apparent demand last year is estimated to be around 11.34 million b/d, representing 1.3% year-on-year growth, according S&P Global Platts' China Oil Analytics.

For 2017, analysts expect GDP growth to further soften to 6.5%. The country's think tank, the State Information Center, forecasts international trade will soften amid global protectionism and this will lead to slower growth in the consumption of transportation fuels.

But oil demand will find some support in infrastructure investment, which according to HSBC will remain a key pillar of growth in 2017.

COA forecasts China's apparent demand will reach 11.57 million b/d in 2017, a 2% increase against the adjusted numbers for 2016.

GASOIL FEELS THE PINCH

Although gasoil demand recovered to a 24-month high of 3.76 million b/d in November, driven by busy transportation activity for raw materials, it failed to lift apparent demand growth for gasoil into positive territory in 2016.

The transportation sector accounts for around 65% of gasoil demand, while agriculture and construction account for the rest.

"Gasoil demand has been retreating since late November, with stocks building up," said a Shandong independent refinery source.

In 2016, apparent demand for gasoil was 3.35 million b/d, a 5.4% decrease year on year, compared with only a 0.4% decline in 2015, Platts' calculations showed. With an adjustment in output data, COA estimates demand at around 3.52 million b/d in 2016, a 0.6% fall year on year.

The decrease would narrow further if the incremental supply from the blending pool was taken into account. Blended barrels, with imported light cycle oil and domestic kerosene as the main components, are not included in gasoil apparent demand calculations.

China's imports of light cycle oil surged 135% year on year to 4.46 million mt in 2016, data from the General Administration of Customs showed. Blending with 1 mt of LCO could get 2-2.5 mt of off-spec gasoil, which is used mainly in the construction and fishing sectors.

"Gasoil demand, including adjusted refinery output, could fall to 3.45 million b/d in 2017 as the economy restructures further and developed provinces along the eastern coast continue to move away from gasoil intensive activity," said Song Yen Ling, a senior analyst with COA.

GASOLINE GROWTH MODERATES

Apparent demand for gasoline was at 2.78 million b/d in 2016, representing slower year-on-year growth of 3.2%, compared with the 9.6% growth registered in 2015. But COA estimates that adjusted demand would be at 2.91 million b/d, a 7.8% increase from 2015 levels.

Similar to gasoil, blending pools also played a role in overall gasoline supplies. Sales of imported mixed aromatics, which are used mainly as a blending material for gasoline, provide an indication of demand.

Data from the GAC showed that imports of mixed aromatics surged 81.4% year on year to 11.7 million mt in 2016, suggesting a significant rise in blending activity. About 3 mt of mixed aromatics are needed to blend 10 mt of gasoline. This means that up to 39 million mt, or 906,000 b/d, could have been added to the supply pool in 2016.

Gasoline demand also found support in a 14% year-on-year rise in gasoline-fueled vehicle sales in 2016, data from the China Association of Automobile Manufacturers showed, with sales of gasoline-guzzling sport utility vehicles surging 43% year on year.

This year, COA expects growth in adjusted gasoline demand growth to slow to around 6% to 3.08 million b/d. "It is likely that the growth of car sales in 2017 would be softer than 2016," Song added.

LPG, NAPHTHA

LPG demand surged to 1.57 million b/d in 2016, up 24.8% year on year, compared with 20% growth in 2015. Market sources attributed last year's strong growth to increasing demand from petrochemical plants, industrial and residential users.

China launched two new PDH units, with a total capacity of 1.16 million mt/year, in the fourth quarter of 2016, adding to the six existing PDH plants with a total capacity of 4.74 million mt/year. As a result, China's LPG imports jumped 33.4% on year to 505,000 b/d in 2016.

This year, LPG demand is expected to continue growing but the year-on-year increase could slow to around 8.3% or 1.7 million b/d because downstream demand is likely to be limited. In addition, no new PDH plant is expected to come online, according to COA.

Apparent demand for naphtha rose 9.8% year on year to 969,000 b/d in 2016. It was slightly higher than the 9% growth registered in 2015.

China's ethylene production rose 3.9% year on year in 2016, stronger than the growth of 1.6% in the previous year. Around 65% naphtha is estimated to be used as feedstock to produce ethylene, while 30% go to reformers.

In 2017, as more reformers are expected to come on stream, naphtha imports are expected to grow sharply, while output from refineries is expected to remain stable. As a result, COA estimates growth to slow to 5.6% this year to 1.02 million b/d.

JET FUEL, FUEL OIL

Apparent demand for jet fuel in 2016 rose 8.7% year on year to 754,000 b/d, slowing from 15.9% growth in 2015 when new production units came on stream.

Latest data from the Civil Aviation Administration of China showed that aviation traffic turnover rose 12.7% year on year in the first 11 months of 2016, down from the 13.8% growth in the whole year of 2015.

In 2017, COA expects apparent demand for jet fuel to grow at 12.3% to 847,000 b/d because of higher production yields of 8.6%, compared to 7.9% last year.

Apparent demand for fuel oil in 2016 fell 23.9% year on year to 716,000 b/d, compared with an increase of 14.9% in 2015. The sharp fall in 2016 was mainly because independent refineries reduced fuel oil use, including bitumen blend, after they were granted crude oil import quotas.

Independent refineries in Shandong province cracked only 1.9 million mt of fuel oil in 2016, down 76.8% from the previous year, data from Beijing-based information supplier JYD showed. COA expects consumption to decline only 1.4% year on year in 2017 to 704,000 b/d.

Attached Files

Weatherford cuts 1,000 jobs, loses $549 million in fourth quarter

Weatherford International cut another 1,000 jobs in the fourth quarter as it idled its U.S. hydraulic fracturing, or fracking, business.

Financially struggling Weatherford opted to scale back in the quarter in a move seen largely as temporarily bowing out against competitor Halliburton’s dominating U.S. fracking position. The job reductions — through layoffs or attrition — come after Weatherford already had cut 8,000 jobs in the first nine months of 2016 in preparation of a slow oil price rebound.

Weatherford lost $549 million in the fourth quarter, but that’s still an improvement from a $1.15 billion loss during the final quarter of 2015, as well as a big $1.78 billion loss in the third quarter of last year.

Shirvam noted Weatherford’s revenues grew 4 percent from the third quarter even with the idling of the pressure pumping business, which includes fracking.

“After a protracted period of relentless cost structure transformation, implementation of disciplined financial metrics and the overall realignment of our company, Weatherford is now well positioned with a streamlined portfolio to make material progress in operating results and to deleverage our balance sheet,” Shivram said in a prepared statement.

U.S. May Export More Oil in 2017 Than Four OPEC Nations Produce

U.S. crude exports are poised to surpass production in four OPEC nations in 2017 and may grow even more if President Donald Trump honors pledges to ease drilling restrictions and maximize output.

The world’s largest oil-consuming country could sell as much as 800,000 barrels a day of crude overseas this year, according to four analysts surveyed by Bloomberg. That’s more than OPEC producers Libya, Qatar, Ecuador and Gabon each pumped in December. The U.S. exported 527,000 barrels a day in the first 11 months of 2016, Energy Information Administration data show.

Chalk it all up to a resurgence in shale oil and gas, which Trump is counting on to create jobs and rebuild roads, schools and bridges. U.S. output will rebound to more than 9 million barrels a day in 2017 after sliding 5.6 percent to 8.87 million in 2016, the EIA estimates. And since restrictions on U.S. crude exports were lifted in late 2015, domestic producers are free to seek buyers in Europe, Asia and Latin America, which are on the lookout for alternate suppliers after OPEC and non-OPEC producers agreed to trim 2017 output.

“Godzilla is even taller in person,” Vikas Dwivedi, senior analyst at Macquarie Capital (USA) Inc., said in a telephone interview from Houston. “U.S. production will be bigger than most people are expecting.”

The increased supply is likely to pressure prices of domestic crude, including the benchmark West Texas Intermediate grade, making it more globally competitive, said Afolabi Ogunnaike, Wood Mackenzie’s Houston-based senior research analyst for Americas refining and oil product markets. WTI was $2.89 a barrel cheaper than European benchmark Brent crude on Jan. 31, the widest discount since December 2015.

But why seek markets abroad when the U.S. is still one of the world’s biggest crude importers, has abundant and inexpensive oil on the horizon and has inaugurated a new president with the stated goal of weaning the country off crude from the Organization of Petroleum Exporting Countries? Because it makes business sense.

The U.S. imported 7.88 million barrels a day of crude in the first 11 months of 2016, including about 3 million from OPEC. And in the first week of January, the country sent a record amount overseas, according to the EIA.

That’s because U.S. refiners were designed to process relatively cheap high-sulfur and high-density crudes produced in Canada and parts of the Middle East and Latin America. They’re not set up to handle the low-sulfur, less dense crude being produced in Texas’ Permian Basin and Eagle Ford regions, where most of the U.S. output growth has occurred.

“If the U.S. system can’t take the crude it produces, it will have to export it,” Macquarie’s Dwivedi said.

Strict adherence to the output cuts OPEC and non-OPEC nations agreed to in November will also provide U.S. producers with a foothold into international markets. OPEC members could reduce supplies by 900,000 barrels a day in January, the first month of implementation of the accord designed to eliminate a global supply glut, according to estimates from tanker-tracker Petro-Logistics SA. That’s about 75 percent of the agreed-upon reduction.

“If OPEC does comply with its cuts, we can expect to see exports rise and that will come from the increased production that we are expecting from the U.S.,” Andy Lipow, president of Lipow Oil Associates, a Houston-based consulting company, said in a telephone interview.

Attached Files

OPEC, Russia spare Asia oil supply cuts in fight to hold market share

OPEC and non-OPEC producer Russia are shielding Asia from supply cuts agreed in a landmark deal last year as they fight to protect their share of the world's biggest and fastest growing oil market.

Instead, they have reduced deliveries to Europe and the Americas as they implement a coordinated agreement to cut supply by about 1.8 million barrels per day (bpd), seeking to reduce a global supply glut and lift oil prices.

The Organization of the Petroleum Exporting Countries' (OPEC) oil supplies to Asia rose by 7 percent between November and January, to 17 million bpd, meeting two-thirds of the region's oil consumption, data from Thomson Reuters Eikon showed.

Under a deal agreed last November, OPEC pledged to cut production by around 1.2 million bpd in the first half of 2017. Other producers, including Russia, pledged to cut another 600,000 bpd.

"For OPEC, and here we mean the Mideast countries, Asia is their core and growing market," said Tushar Bansal, director at Singapore-based consultancy Ivy Global Energy. "The last thing OPEC ... would want is that as they develop newer markets outside the region, some other players like Rosneft or Venezuela increase their market share in what is their backyard."

While the OPEC and Russian cuts should eventually rebalance the market after a three-year glut, it will be slower in Asia unless regional demand picks up.

In a sign of ongoing Asian oversupply, Eikon data shows that around 30 chartered supertankers, known as Very Large Crude Carriers (VLCC), are sitting in the waters outside Asia's oil trading hub of Singapore and southern Malaysia, carrying about 55 million barrels of oil, enough to meet almost five days of Chinese demand.

Asia has been the main source of global oil demand growth for the past two decades as consumption in economically developed nations has stagnated.

Therefore, OPEC has raised its supply to Asia, and Russia has also re-routed a great chunk of its rising production toward China and the Asia-Pacific over the past decade. Russia surpassed Saudi Arabia as China's biggest supplier last year, exporting 1.05 million bpd of crude versus Saudi Arabia's 1.02 million.

The increase in Asian deliveries contrasts with OPEC's global cut of over 1 million bpd in January, surprising market watchers with a compliance rate of over 80 percent.

Russia, the world's biggest oil producer, also said it cut supplies by 100,000 bpd in January.

"Oil stocks are drawing, especially in Europe. In Asia, strong demand is tightening the market, but it will take time," said Oystein Berentsen, managing director for crude at oil trading firm Strong Petroleum in Singapore.

For the moment, data from the U.S. Energy Information Administration (EIA) suggests that global markets remain oversupplied, with around 95.8 million bpd of demand being met by 96.4 million bpd of supply.

But given the cuts and an expected demand increase of up to 1.6 million bpd this year, the global market will likely balance this year.

Total, CMA CGM ink MoU for fuel supply including LNG

France’s Total signed a memorandum of understanding with CMA CGM to supply a range of multi-fuel solutions including LNG, in order to reduce the shipping footprint.

The MoU has been signed for a period of three years, CMA CGM, the shipping group said in its statement on Wednesday.

The two partners aim to prepare for stricter fuel regulations in the shipping industry and further reduce the sector’s footprint by developing solutions for the container ships.

Under the agreement, Total will become CMA CGM’s fuel supplier, providing liquefied natural gas, fuel oil with sulfur content of 0.5 percent and fuel oil with a sulfur content of 3.5 percent for ships equipped with exhaust gas cleaning systems, or scrubbers.

Accordingly, Total’s unit Total Marine Fuels will be renamed Total Marine Fuels Global Solutions on Tuesday, February 1, 2017, aiming to become a major player in the LNG bunker market.

India Plans to Create Oil Giant by Integrating State-Run Firms

India is planning to create a state-owned oil giant through mergers to match the might of international companies and billionaire Mukesh Ambani’s Reliance Industries Ltd.

“We see opportunities to strengthen our central public-sector enterprises through consolidation, mergers and acquisitions,” Finance Minister Arun Jaitley said in Parliament while presenting the federal budget for the year beginning April 1. “It will give them the capacity to bear high risk, avail economies of scale, take higher investment decision and create more value for stakeholders.”

India is overtaking Japan as the world’s third-largest oil consumer and will be the center of global growth through 2040, according to the International Energy Agency. Its upstream production is dominated by Oil and Natural Gas Corp., which operates independently of the biggest refiner, Indian Oil Corp. Bharat Petroleum Corp. and Hindustan Oil Corp. are the two other state-owned refiners, while Oil India Ltd. is a smaller oil and gas producer. GAIL India Ltd. is the country’s largest gas pipeline operator.

India oil and gas companies are small compared with some of their global peers. The combined market capitalization of India’s top eight state-owned oil and gas companies is about $105 billion. Such an entity would rank seventh among global oil firms, according to data compiled by Bloomberg.

While size matters in the global oil and gas industry, ensuring governance will be equally important so that an inefficient behemoth isn’t created, said Debasish Mishra, a partner at Deloitte Touche Tohmatsu LLP in Mumbai.

Such an integration would require political and administrative will, said Deepak Mahurkar, leader India oil and gas industry practice at PricewaterhouseCoopers Pvt. Attempts at merging Indian oil companies have been made in the past, he said.

In an interview in August, Oil Minister Dharmendra Pradhan had said the government is seeking an appropriate model for combining India’s state-run oil companies.

“Creating an integrated oil major will help achieve the goal of increasing India’s energy security,” said ONGC Chairman Dinesh Kumar Sarraf. “A bigger entity will have bigger resources and a bigger appetite for acquisitions.”

OPEC cut extension could hurt Saudi plan to balance market- Gunvor

An extension of OPEC oil production cuts could push oil prices too high to meet Saudi Arabia and others' objective of balancing the market without encouraging U.S. shale output, Gunvor's head of oil market research said on Wednesday.

The Organization of the Petroleum Exporting Countries (OPEC) had already begun to achieve some of its aims, creating a virtual price floor of $50 per barrel, David Fyfe told the Platts Middle Distillates conference in Antwerp.

OPEC, Russia and other producers have agreed to trim 1.8 million barrels per day (bpd) from their production for six months from Jan. 1.

Fyfe said extending the cuts beyond the six month agreement could push prices so high that they would draw larger output increases from other regions.

"If they hold 1 million bpd cuts into 2017, and the Russians contribute something, there could be a 250 million-barrel draw," Fyfe said. That size of a draw "would push prices sharply higher, and they don't want that."

OPEC has said its production deal is extendable for another six months but a number of the group's oil ministers have said this is not likely.

Some analysts have said an extension of the supply cuts would be necessary to maintain stability in global supply/demand balances.

But Fyfe said that under OPEC's current plan, the market could draw roughly 120 million barrels from storage, beginning in the second quarter, keeping prices in the $55-$60 per barrel range this year, eventually "drifting" to $70-$75 per barrel in 2018.

Fyfe said this should ensure prices would not go too high or too low.

He said a 120 million barrel stock draw would still leave global stocks above their five-year average. The International Energy Agency said in its latest report that stocks in the developed world were still some 300 million barrels above that level.

Fyfe also said the lack of spare oil production capacity meant that higher stocks could help the market cope with further supply outages, such as those in Libya and Nigeria.

Pipeline company Oneok to buy rest of Partners for $9.3 billion

Natural gas pipeline company Oneok Inc said it would buy the remainder of the company for $9.3 billion, adding to a string of master limited partnerships deals aimed at simplifying structures and increasing returns.

Oneok, which owns more than 19 percent of Oneok Partners LP, said it would pay 0.985 shares for each Oneok Partners unit it does not already own.

Based on both the stocks' closing price on Tuesday, that works out to $54.28 per share, representing a premium of 26 percent for shareholders of Oneok Partners.

Oneok said the combined company will have an integrated 37,000 mile network of natural gas liquids, pipelines and processing plants in the Williston Basin, U.S. Mid-Continent, Permian Basin, Midwest and Gulf Coast.

Oneok Partners' shares will no longer be publicly traded.

Oneok said the deal would result in a dividend increase of 21 percent to 74.5 cents per share, or $2.98 on an annual basis.

Attached Files

Marathon Petroleum's profit beats; says to speed up asset transfer

Marathon Petroleum Corp reported a higher-than-expected quarterly profit and said it would speed up the transfer of assets to its unit, MPLX LP.

Amid pressure from hedge fund Elliott Management to boost its stock price, Marathon said in January that it would accelerate its previously announced drop down to MPLX and consider a separation of its Speedway retail business.

Elliott had disclosed a 4 percent stake in Marathon in November and urged the company to separate its retail, refining and pipeline businesses.

The refiner said on Wednesday a special committee, which was reviewing Speedway's divestiture, was expected to provide an update by mid-2017.

Marathon, whose operations are primarily in the U.S. Midwest, Southeast and Gulf Coast, said its refining and marketing gross margin fell 10.2 percent to $11.41 per barrel in the fourth quarter.

Crude oil capacity utilization was 93 percent in the latest quarter, down from 100 percent in the third quarter, the company said.

Findlay, Ohio-based Marathon also cut its investments in a project, which will integrate its Galveston Bay and Texas City refineries, to $1.5 billion from $2 billion.

Net income attributable to the company rose to $227 million, or 43 cents per share, in the fourth quarter ended Dec. 31 from $187 million, or 35 cents per share, a year earlier.

Excluding items, the company reported earnings of 43 cents per share, while analysts' on average had expected earnings of 26 cents, according to Thomson Reuters I/B/E/S.

Total revenue and other income rose 10.2 percent to $17.28 billion, handily beating analysts' estimate of $14.54 billion.

India slashes LNG import tax

India, the world’s fourth-largest buyer of liquefied natural gas (LNG), has announced plans to halve its basic customs duty on imports of the chilled fuel.

In presenting to Parliament the budget for fiscal year that starts April 1, Finance Minister Arun Jaitley on Wednesday said he proposes to reduce the basics customs duty on LNG from current 5 percent to 2.5 percent as part of the plans to shift to a natural gas-based economy.

India’s LNG imports have been rising steadily in the least 12 months, boosted by low prices of the chilled fuel.

In the April-December period, India’s LNG imports rose 19.9 percent year-on-year to 18.7 Bcm or about 13.87 million mt of LNG.

Costs of importing LNG into India have dropped sharply last year after the country’s largest importer, Petronet LNG signed a revised long-term contract with Qatari LNG producer RasGas.

Petronet LNG’s shares are currently trading at 387.65 Indian rupees ($5.74), almost 4 percent up from its previous closing of Rs 373.95 on the Bombay Stock Exchange.

Summary of Weekly Petroleum Data for the Week Ending January 27, 2017

U.S. crude oil refinery inputs averaged over 15.9 million barrels per day during the week ending January 27, 2017, 100,000 barrels per day less than the previous week’s average. Refineries operated at 88.2% of their operable capacity last week. Gasoline production increased last week, averaging 9.1 million barrels per day. Distillate fuel production increased last week, averaging 4.7 million barrels per day.

U.S. crude oil imports averaged 8.3 million barrels per day last week, up by 480,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.4 million barrels per day, 5.3% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 488,000 barrels per day. Distillate fuel imports averaged 236,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 6.5 million barrels from the previous week. At 494.8 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 3.9 million barrels last week, and are above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 1.6 million barrels last week and are well above the upper limit of the average range for this time of year. Propane/propylene inventories fell 5.6 million barrels last week but are in the upper half of the average range. Total commercial petroleum inventories increased by 5.3 million barrels last week.

Total products supplied over the last four-week period averaged over 19.3 million barrels per day, down by 1.9% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 8.2 million barrels per day, down by 5.7% from the same period last year. Distillate fuel product supplied averaged 3.7 million barrels per day over the last four weeks, up by 5.0% from the same period last year. Jet fuel product supplied is up 6.3% compared to the same four-week period last year.

Nord Stream 2 pipeline gets Swedish support after all

Following the initial rejection of the logistics support by Sweden to Wassco for the Nord Stream 2 pipeline project, things have seemingly changed.

To remind, reports in 2016 said that the authorities of the Swedish Region Gotland and the municipality Karlshamn had decided not to sign an agreement for the utilization of their respective harbours – Slite and Karlshamn for the storage of the piping for the project, citing “security situation.”

However, in a statement on Tuesday afternoon, Nord Stream 2, a company operating the project said there has been a change of heart.

According to Nord Stream 2 company, the municipality Karlshamn has signed an agreement for the use of its port for pipe storage during the project’s execution phase.

“The port of Karlshamn has since our first contacts signalled its commercial interest in taking part in the project. Nord Stream’s 2 contractor, Wasco Coatings Germany GmbH, will consequently use the harbour for pipe transhipments and storage over a two-year period as of this autumn,” Nord Stream 2 said.

The pipeline involves two parallel 48 inch lines, roughly 1,200 km, each starting from south-west of St Petersburg and ending at German coast, Greifswald.

Nord Stream 2’s natural gas pipelines through the Baltic Sea will have the capacity to transport 55 billion cubic meters (bcm) of Russian gas a year to the EU, for at least 50 years.

During the first phase, pipes exclusively made in Germany will be shipped to Karlshamn and then stored within the premises of the port. During the second phase, these pipes will be loaded onto pipe-carrier vessels transporting them to the lay barge on the sea.

Wasco is in charge of the entire transhipment process, with no involvement of Nord Stream 2 nor its shareholder Gazprom, Nord Stream 2 said.

Wasco intends to hire locals and mainly work with local suppliers to supply goods and services for these operations. Wasco will in total use four ports for the pipe logistics of the Nord Stream 2 project: Mukran in Germany, Kotka and Hanko in Finland, and Karlshamn in Sweden.

“During the first Nord Stream project, the company, Swedish authorities, municipalities, suppliers and local communities cooperated in an open, constructive and fruitful manner over a period of many years. Nord Stream 2 would like to continue the on-going project guided by the same principles,” the company said.

The Nord Stream 2 shareholders are Gazprom, the German companies E.ON SE and BASF SE/Wintershall Holding GmbH, the Anglo-Dutch Royal Dutch Shell plc, the Austrian OMV AG and the French ENGIE S.A.

ExxonMobil Chemical says to start up Baytown steam cracker by H2 2017

ExxonMobil Chemical will complete expansions of its Baytown and Mont Belvieu, Texas, operations on schedule in the second half of 2017, a company spokesman said Tuesday during ExxonMobil's fourth-quarter 2016 earnings call.

"The construction of the ethane cracker is progressing well," spokesman Jeff Woodbury said, adding that startup was expected by the second half of this year.

At least one polyethylene line is being built at ExxonMobil's Mont Belvieu complex too, and is expected to come online at the same time. The plant is expected to add linear-low density and high density polyethylene capacity.

The Baytown project will look to to take advantage of cheaper natural gas liquid feedstock, according to the company.

When combined with ExxonMobil's 650,000 mt/year polyethylene capacity expansion at its Beaumont, Texas, facility (See story, 1635 GMT), about 2 million mt/year of capacity will come online, increasing ExxonMobil's US polyethylene production by about 40%.

The increase would make Texas the company's largest polyethylene supply point, Woodbury said.

It's Still Not a Great Time to Be Big Oil

Crude prices may have stabilized, but it’s still not a great time to be Big Oil.

Investors eliminated about $53 billion in market value for producers over three days as the twin titans of U.S. oil posted their worst annual financial outcomes in decades. With Royal Dutch Shell Plc, Total SA and BP Plc due to announce 2016 results in coming days, the grim headlines may not yet be over.

Exxon Mobil Corp. reported Tuesday a $2 billion writedown of its natural gas fields, lower-than-expected quarterly profit and a full-year result that was its worst since 1996. That followed Chevron Corp., which reported its first yearly loss in at least 37 years on Jan. 27.

Drillers have responded to the 2 1/2-year slide in energy markets by firing hundreds of thousands of workers, auctioning off billions in assets, abandoning their riskiest projects and living on borrowed cash. The latest results, though, suggest the industry may still need recovery time, even with crude prices more than doubling since dipping to a 12-year low in February 2016.

“It was a pretty nasty year, one of the toughest years ever for the global oil industry,” said Sarah Emerson, managing director at Energy Security Analysis Inc. in Wakefield, Massachusetts. “The big difference now is oil is above $55 a barrel.”

Oil producers had been flying high on OPEC’s Nov. 30 plan to cut output. Investors responded by adding $235 billion in market value to the Bloomberg World Oil & Gas Index in the ensuing eight weeks. By the end of the trading day Tuesday after Exxon’s report, the index had fallen 1.9 percent in three sessions, also pressured by investors weighing U.S. President Donald Trump’s first week in office.

Individually, Exxon fell as much as 2 percent on Tuesday. Chevron has lost 4.5 percent of its value since it announced results at the end of last week. The Bloomberg World Oil & Gas Index, which has slipped 2.9 percent since hitting a 17-month high on Jan. 5, was little changed as of 12:49 p.m. in Singapore.

For Exxon, it was the ninth-straight quarter of year-over-year profit declines, the longest such streak since at least 1988. The bleak result capped Rex Tillerson’s final quarter at the helm of the world’s largest oil producer by market value. The market collapse aggravated the impact Exxon felt from its own stillborn Russian drilling venture, domestic legal disputes over whether the company engaged in climate-science deception and the loss of its gold-plated credit rating.

Hefty Writedown

Exxon’s writedown slashed fourth-quarter profit to $1.68 billion, or 41 cents a share, more than 40 percent lower than the average estimate of 21 analysts in a Bloomberg survey, the widest gap since at least 2006.

Chevron and Exxon are taking markedly different approaches to the lingering sting of 2016. Whereas Chevron plans to shrink expenditures on drilling and other projects by 15 percent to conserve cash, Exxon said Tuesday it will boost its budget by 14 percent to $22 billion.

Exxon appears to be taking a page from U.S. shale drillers who are responding to the uptick in crude prices with ambitious expansion plans: Continental Resources Inc. and Diamondback Energy Inc. are lifting spending by 77 percent and 106 percent, respectively.

Exxon’s capital spending increase was “a much more assertive increase than most had anticipated,” said Guy Baber, an analyst at Piper Jaffray & Co.

New CEO

In his first month on the job, Exxon Chairman and Chief Executive Officer Darren Woods is looking to deepwater drilling in South America and West Africa, gas exports in the South Pacific and shale riches in the Permian Basin beneath Texas and New Mexico to bolster reserves and improve Exxon’s production and profit outlook.

Woods, an Exxon lifer whose responsibilities included overseeing the company’s fleet of refineries and chemical plants, became chairman and CEO on Jan. 1 after his mentor Tillerson was nominated for U.S. Secretary of State.

The company agreed two weeks ago to shell out as much as $6.6 billion to double its Permian drilling rights in Exxon’s biggest transaction in 6 1/2 years.

The purchase may help replace reserves Exxon plans wipe off the books in coming weeks. Exxon expects to follow through with most of the 4.6 billion-barrel reserves reduction it warned investors about in October, Vice President Jeff Woodbury said during a webcast on Tuesday. That would equate to 19 percent of Exxon’s reserves and would be the largest de-booking since the 1999 merger that created the company in its modern form.

“Investors have been concerned with the pace of reserve replacement and production growth, particularly projected into the next decade,” said Sam Margolin, an analyst at Cowen Group Inc. Exxon has an advantage over its peers partly because of the huge trove of shares it holds in its treasury that can be used like cash for acquisitions, he said.

Dakota Access pipeline moves closer to completion: lawmakers

The U.S. Army Corps of Engineers will grant the final approval needed to finish the Dakota Access Pipeline project, U.S. Senator John Hoeven and Congressman Kevin Cramer of North Dakota said on Tuesday.

However, opponents of the $3.8 billion project, including the Standing Rock Sioux Tribe, whose reservation is adjacent to the route, claimed that Hoeven and Cramer were jumping the gun and that an environmental study underway must be completed before the permit was granted.

For months, climate activists and the Standing Rock Sioux tribe have been protesting against the completion of the line under Lake Oahe, a reservoir that is part of the Missouri River. The one-mile stretch of the 1,170-mile (1,885 km) line is the only incomplete section in North Dakota.

The project would run from the western part of the state to Patoka, Illinois, and connect to another line to move crude to the U.S. Gulf Coast.

Hoeven said Acting Secretary of the Army Robert Speer had told him and Vice President Mike Pence of the move. "This will enable the company to complete the project, which can and will be built with the necessary safety features to protect the Standing Rock Sioux Tribe and others downstream," Hoeven, a Republican, said in a statement.

Representatives for the Army Corps of Engineers could not be reached immediately for comment late on Tuesday. The Department of Justice declined to comment.

President Donald Trump signed an executive order last week allowing Energy Transfer Partners LP's Dakota Access Pipeline to go forward, after months of protests from Native American groups and climate activists pushed the administration of President Barack Obama to ask for an additional environmental review of the controversial project.

The approval would mark a bitter defeat for Native American tribes and climate activists, who successfully blocked the project earlier and vowed to fight the decision through legal action.

On Tuesday evening, the Standing Rock tribe said the Army could not circumvent a scheduled environmental impact study that was ordered by the outgoing Obama administration in January. "The Army Corps lacks statutory authority to simply stop the EIS," they said in a statement.

The tribe said it would take legal action against the U.S. Army's reported decision to grant the final easement.

"JUMPED THE GUN"

Jan Hasselman, an Earthjustice lawyer representing the tribe, told Reuters that Hoeven and Cramer "jumped the gun" by saying the easement would be granted and that the easement was not yet issued.

Dallas Goldtooth of the Indigenous Environment Network, which has been a vocal opponent of the pipeline, said on Twitter that lawmakers were "trying to incite violence" by saying the easement was granted before it was official.

There have been numerous clashes between law enforcement and protesters over the past several months, some of which have turned violent. More than 600 arrests have been made.

Heavy earth-moving equipment had been moved to the protest camp in recent days to remove abandoned tipis and cars, with the camp to be cleared out before expected flooding in March.

There were more than 10,000 people at the camp at one point, including Native Americans, climate activists and veterans. Several hundred remain.

A spokesman for Hoeven, Don Canton, said it would probably be a "matter of days rather than weeks" for the easement to be issued.

Oil producers in North Dakota are expected to benefit from a quicker route for crude oil to U.S. Gulf Coast refineries.

North Dakota Democratic Senator Heidi Heitkamp said the timeline for construction was still unknown but said she hoped Trump would provide additional law enforcement resources and funding to ensure the safe start of pipeline construction.

Attached Files

Anadarko Petroleum narrows loss

Anadarko Petroleum Corp. said oil sales climbed 25% in its fourth quarter to help it narrow its losses, but results still fell short of profit projections.

The latest results come amid stirring hopes for downtrodden energy markets. Analysts are raising their oil-price forecasts for the first time in five months, even as they continue to see plentiful risks.

The Organization of the Petroleum Exporting Countries has trimmed output by slightly more than 1 million barrels a day, or 88% of what they agreed to in November, according to JBC Energy.

Anadarko, based in The Woodlands, Texas, reported a loss of $515 million, narrower than that in the same period last year, when it lost $1.25 billion. On a per-share basis, the company booked a loss of 94 cents compared with a loss of $2.45 a year ago. Excluding certain items, the company's loss per share was 50 cents versus a loss of 57 cents per share a year ago.

Saudi Aramco is expected to raise the March official selling prices of its Asia-bound crude oil, largely due to the stronger Dubai crude oil market structure, traders said Tuesday.

Most traders surveyed by S&P Global Platts said they expected Aramco to raise the March OSP differential of its Asia-bound Arab Light crude by around 10-20 cents/b from a discount of 15 cents/b to the Platts Oman/Dubai average in February.

In addition, the narrow Brent-Dubai exchange of futures for swaps, or EFS, could make western barrels increasingly attractive to buyers in Asia.

The EFS has averaged at $1.65/b to date in January, the lowest since September 2015, when it averaged at $1.54/b.

The EFS is a key spread watched by the market to evaluate the value of European sweet crudes against Middle East sour crudes.

Earlier this month, Saudi Aramco raised the February OSP differential of its Asia-bound Arab Super Light and Arab Extra Light by 40-45 cents/b to premiums of $3.45/b and $1.10/b to the Platts Oman/Dubai average in February respectively.

The February OSP differential of its Asia-bound Arab Light grade was raised by 60 cents/b to a discount of 15 cents/b, while the OSP differentials for Arab Medium and Arab Heavy grades bound for Asia were raised by 50 cents/b each to discounts of 90 cents/b and $2.80/b respectively relative to Oman/Dubai.

Aramco is expected to announce its March OSP differentials in the coming days.

Attached Files

Major U.S. tight oil-producing states expected to drive production gains through 2018

In EIA’s January Short-Term Energy Outlook, U.S. crude oil production is forecast to increase from an average of 8.9 million barrels per day (b/d) in 2016 to an average of 9.3 million b/d in 2018, primarily as a result of gains in the major U.S. tight oil-producing states: Texas, North Dakota, Oklahoma, and New Mexico. Of these states, Texas and North Dakota will continue to be the largest producers of crude oil because of the large amounts of economically recoverable resources in the Eagle Ford, Permian, and Bakken regions.

Production in Texas, the largest oil-producing state, is driven by two major oil-producing regions, the Permian and the Eagle Ford. As defined in EIA’s Drilling Productivity Report, the Permian region makes up a large geographic area with producing zones each more than 1,000 feet thick and with multiple stacked plays. Because of its large geographic size, the Permian offers a lot of potential for testing and drilling, and the multiple stacked plays allow producers to continue to drill both vertical wells and hydraulically fractured horizontal wells.

Although overall U.S. oil production has been declining since mid-2015, production has continued to increase in the Permian region. In 2016, Permian production averaged 2.0 million b/d, a 5% increase from the level in 2015. EIA expects this trend to continue, with Permian production projected to average 2.3 million b/d in 2017 and 2.5 million b/d in 2018.

Compared with the Permian region, the Eagle Ford region has fewer overall drilling opportunities in core areas. The Eagle Ford region has a significantly smaller geographic area than the Permian region, and the region's target producing zones are only about 200–300 feet thick, compared to the thousands of feet within the Permian. As with most shale and tight oil regions, the Eagle Ford region has wells with high initial production rates, but faster than average production rate declines. Because of these production rates, drilling fewer new wells has a more immediate effect on production. As low oil prices slowed the pace of drilling, production in the Eagle Ford region has declined since March 2015, with average annual production at 1.6 million b/d in 2015 and 1.3 million b/d in 2016.

Although declines in Eagle Ford production are expected to continue through the first half of 2017, EIA expects production in that region will begin increasing in the third quarter of 2017 and will continue to increase through 2018 as higher oil prices encourage more drilling activity. With the combination of the Permian’s continued growth and renewed production in the Eagle Ford, Texas is expected to continue to be the largest-producing state through 2018.

The Bakken and Three Forks formations drive crude oil production in North Dakota, which has been in decline since 2015 in response to lower prices. Unlike in Texas, producers in North Dakota have additional infrastructure constraints involved in transporting their products to market. During the winter, production costs increase as operators must deal with below-freezing temperatures and heavy snowfall. However, as in the Eagle Ford, new drilling is expected to increase, enabling overall Bakken production to stay at least flat through 2018.

More information about current drilling activity and production in key regions is available in EIA’s Drilling Productivity Report. More information about monthly production and price expectations through 2018 is available in EIA’s Short-Term Energy Outlook.

Attached Files

Gazprom looks to add latest Ukraine bill to arbitration claim

Russia's Gazprom has asked that a bill for $5.319 billion sent to Ukraine's Naftogaz Ukrayiny on January 17 be added to its list of claims against the state-owned Ukrainian company currently before the Stockholm arbitration court, Gazprom's press service said Monday.

Gazprom charged Naftogaz for gas not taken in 2016 under the take-or-pay terms of a 10-year gas supply contract signed in 2009 and gave Naftogaz 10 days to pay.

Naftogaz said it would refuse to pay anything to Gazprom until a ruling from the Stockholm court.

With the 10-day deadline now passed, Gazprom said it had requested the new additional amount be considered by the Stockholm court.

"Gazprom will look to have the request met," the service said.

Before the latest bill, Gazprom was claiming some $39 billion from the Ukrainian company, while Naftogaz, in its own claims to the court, was seeking $28 billion from Gazprom, saying it had been overcharged since 2010.

A ruling from the court, which began addressing all of the claims at the end of 2016, is due in June.

If the court considers the latest bill too it would bring Gazprom's claims to more than $44 billion.

TAKE-OR-PAY

Take-or-pay clauses -- where buyers agree to pay for gas even if it is not delivered -- are routine in supply contracts, giving the seller certainty of demand over a particular period of time.

Naftogaz said it repeatedly asked Gazprom in 2016 to supply gas on terms in force in 2014 and 2015, when it signed special amendments to the supply contract.

Naftogaz halted purchases of Russian gas in November 2015, saying it would instead buy gas from European partners, and has bought no Russian gas since.

The Gazprom bill covers undelivered gas for second quarter of 2016 through the fourth quarter of the year, under the take-or-pay rules of the contract, but not the first quarter of 2016, when the take-or-pay obligations were waived under the agreed Winter Package of that year.

According to the take-or-pay terms of the contract, Ukraine is obliged to buy 41.6 Bcm/year of Russian gas, but this amount can be lowered to 33.3 Bcm/year with Gazprom's consent.

According to S&P Global Platts calculations, the amount of unpaid gas in the nine-month period is around 30.6 Bcm, or 111 million cu m/d, given the size of the bill.

Platts estimates that the average price of Russian gas for Ukraine in the Q2 through Q4 period was $173.70/1,000 cu m, based on the formula in the Russia-Ukraine gas supply contract.

The price in Q2 was $178.05/1,000 cu m, in Q3 $168.05/1,000 cu m and in Q4 $175.15/1,000 cu m.

Halliburton Selects SandBox as Its Preferred Provider for Last Mile Logistics

Halliburton today announced it has selected SandBox Logistics, a U.S. Silica company as its preferred provider for containerized sand delivery, pursuant to a long-term agreement.

Sandbox’s delivery solution offers significantly improved operating efficiencies, a safer work environment and cost savings relative to current proppant delivery systems. “Logistics is an important part of the supply chain and one of the parts that gets the tightest in today’s environment is the last-mile component,” said Jeff Miller, president of Halliburton. “Sandbox’s containerized system helps enhance our ability to provide our customers with better service quality by providing a safer, more efficient delivery system.”

“We’re very pleased to be chosen by Halliburton to provide a proven containerized delivery solution which will enable them to flex quickly with customers and markets and maximize the value of their logistics assets,” said Bryan Shinn, U.S. Silica president and chief executive officer. “Our agreement with Halliburton further establishes Sandbox as an industry leader in last mile containerized delivery solutions.”

About Halliburton

Founded in 1919, Halliburton is one of the world's largest providers of products and services to the energy industry. With approximately 50,000 employees representing 140 nationalities, and operations in approximately 70 countries, the company serves the upstream oil and gas industry throughout the lifecycle of the reservoir – from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction, completion and production optimization. Visit the company’s website at www.halliburton.com. Connect with Halliburton on Facebook, Twitter, LinkedIn, and YouTube.

About U.S. Silica

U.S. Silica Holdings, Inc., a member of the Russell 2000, is a leading producer of commercial silica used in the oil and gas industry, and in a wide range of industrial applications. Over its 117-year history, U.S. Silica has developed core competencies in mining, processing, logistics and materials science that enable it to produce and cost-effectively deliver over 260 products to customers across our end markets. The Company currently operates nine industrial sand production plants and nine oil and gas sand production plants. The Company is headquartered in Frederick, Maryland and also has offices located in Chicago, Illinois, and Houston, Texas.

OPEC's oil output is set to fall by more than 1 million barrels per day (bpd) this month, a Reuters survey found on Tuesday, pointing to a strong start by the exporter group in implementing its first supply cut deal in eight years.

The Organization of the Petroleum Exporting Countries agreed to cut its output by about 1.20 million bpd from Jan. 1 - the first such deal since 2008 - to prop up oil prices LCOc1 and get rid of a supply glut.

Supply from the 11 OPEC members with production targets under the deal in January has averaged 30.01 million bpd, according to the survey based on shipping data and information from industry sources, down from 31.17 million bpd in December.

Compared with the levels that the countries agreed to make the reductions from, in most cases their October output, this means the OPEC members have cut output by 958,000 bpd of the pledged 1.164 million bpd, equating to 82 percent compliance.

The Reuters survey is based on shipping data provided by external sources, Thomson Reuters flows data, and information provided by sources at oil companies, OPEC and consulting firms.

Valero Energy profit beats estimates on higher ethanol margins

Valero Energy Corp, the largest independent U.S. refiner, reported a better-than-expected quarterly profit as higher margins in its ethanol unit more than offset weakness in its refining business.

The company reported an operating profit of $126 million in its ethanol business for the fourth quarter, compared to a loss of $13 million a year earlier, helped by lower corn and stronger ethanol prices.

However, the company's refining margins were hurt by the narrowing gap between the price of U.S. crude and globally-traded Brent crude, to which refined products prices are tied.

Refining throughput margin fell to $8.22 per barrel in the fourth quarter, from $10.87 per barrel a year earlier.

Valero's refineries operated at 95 percent throughput capacity utilization in the quarter, in line with the preceding quarter.

The company said it expects to spend about $2.7 billion in 2017, more than the $2 billion it spent last year.

Net income attributable to shareholders rose to $367 million, or 81 cents per share, in the fourth quarter ended Dec. 31, from $298 million, or 62 cents per share, a year earlier.

Valero also reported adjusted earnings of 81 cents per share, while analysts on average had expected earnings of 77 cents, according to Thomson Reuters I/B/E/S.

Texas Pipeline, Highway Remain Shut After Rupture

A major crude oil pipeline owned by Enterprise Products Partners and Enbridge Inc. remained shut Tuesday after road construction crews ruptured it northeast of Dallas, causing a gusher that sprayed oil all over a highway.

The 30-inch diameter Seaway S-1 pipeline pumps oil 500 miles from the commercial hub in Cushing, Okla. to refineries near Houston and elsewhere along the Gulf Coast. Pipeline representatives weren’t immediately available to indicate how much oil was spilled or when the line may reopen.

The Collin County Sheriff’s Department said a contracted road crew working with the Texas Department of Transportation punctured the high-pressure pipeline Monday afternoon, sending oil gushing several stories into the air and onto State Highway 121 near the tiny town of Trenton.

The highway was shut in both directions to prevent accidents on the oil-caked roadway, and a dispatcher from the sheriff’s office said Tuesday the highway is likely to stay shut until Tuesday afternoon as cleanup continues.

The pipeline is operated by Seaway Crude Pipeline Company, a 50/50 joint venture between Houston-based Enterprise and Canadian firm Enbridge. “The pipeline has been shut down and isolated,” it said in its most recent statement Monday, adding it is developing “a plan to resume operations as quickly and safely as possible.” Seaway said the incident didn’t result in any fire or injuries.

ARAMCO hires Gaffney Cline

Gaffney Cline won’t be allowed to reveal to investors the number of barrels the company manages, the people familiar with the matter said, but only how long its reserves would last under normal conditions.

Exxon: not so good, Chevron awful.

Attached Files

Shell sells Thailand gas field stake to Kuwait's Kufpec for $900 million

Royal Dutch Shell said on Tuesday it would sell its stake in Thailand's Bongkot gas field to Kuwait Foreign Petroleum Exploration Company for $900 million (719.5 million pounds).

The move is the latest stage of the Anglo-Dutch company's push to reduce debt after buying smaller rival BG Group for $70 billion, bringing its total divestments since April 2015 to 8.7 billion.

The transaction will include Shell's 22.2-percent equity stake in the Bongkot field and adjoining acreage off the coast of Thailand consisting of Blocks 15, 16 and 17 and Block G12/48, Shell said in a statement.

Kufpec said in a separate statement that the acquisition would provide it with 68 million barrels of oil equivalent in proved and probable reserves and approximately 39,000 barrels of oil equivalent per day of production.

Kufpec expects the acquisition to be completed in February while Shell gave a timeline of the first quarter of 2017.

PTT Exploration and Production PCL (PTTEP.BK) operates the offshore Bongkot field with a 44.445-percent equity while Total has a 33.333 percent stake.

Shell is also nearing the sale of a large part of its North Sea oil and gas assets to private equity-backed Chrysaor for $3 billion.

Petrogas buys interest in wells in Oklahoma, Texas

Houston-based oil and gas exploration company Petrogas Co., Inc., now has fractional interest in six wells across southern Oklahoma and Central Texas.

The producing oil and gas wells are scattered across Carter and LeFlore counties in Oklahoma and Brazos and Fayette counties in Texas. BP America, Montgomery Exploration and Enervest operate the wells, according to a company statement.

“The market is very ripe for acquisitions at the moment, and we are trying to close as many good deals as possible, as quickly as possible because we expect asset prices to rise by the end of Q1,” Petrogas CEO Huang Yu said in a statement.

Petrogas recently bought a stake in 11 reactivated oil wells in East Texas.

U.S. operators plan major drilling boost as industry shakes off downturn

The North American upstream industry is set to stage a comeback, according to new data presented by World Oil, the premier trade publication for the international upstream industry.

According to proprietary survey data—gathered from U.S. operators, U.S. state agencies and international petroleum ministries/departments—World Oil forecasts the following for 2017:

• U.S. drilling will jump 26.8% higher, to 18,552 wells• U.S. footage will increase 29.8%, to 151.5 MMft of hole.• U.S. Gulf of Mexico E&P activity, focused on deepwater projects, will go up approximately 9.4%, with increasing well depths and footage.• Canadian activity will begin to improve, gaining 21.6% to 4,212 wells.• Global drilling should increase moderately to 39,742 wells, for a 6.1% pick-up.• Global offshore drilling, reflecting stagnant capex outside North America, will only increase 1.4%, to 2,604 wells.

Speaking to about 400 attendees at a Friday morning breakfast briefing, Kurt Abraham, World Oil’s chief forecaster and editor, noted that U.S. production—which averaged 8.9 MMbopd in the fourth quarter, up from 8.7 MMbopd in the third quarter—appears to be on the rise. However, he warned, North America may have to continue in its new role as swing producer, and thus may be required to remain flexible.

Texas. Drilling in the Lone Star State will rise 26.4%, with double-digit increases expected for all 12 of the Railroad Commission districts. While the gains are being led by the Permian, with some additional recovery in the Eagle Ford, there is also significant improvement underway in conventional activity.

Permian basin. In 2016, operators drilled 3,198 wells in Railroad Commission Districts 8 and 7C, more than originally anticipated. For 2017, World Oil expects to see 3,999 wells drilled in these districts. For 2017, the industry projects a 10% increase in average lateral length for the Permian.

Eagle Ford. In the Eagle Ford’s predominantly oil portion, concentrated in District 1, activity should increase 28.3%. World Oil predicts that operators will drill 802 wells with an average TD of 14,250 ft. In the gas-heavy Railroad Commission District 2, operators have said they plan to drill 638 wells to an average TD of 15,400 ft, a gain of 23.9%. Activity in District 4 is also forecast to increase 19.1%.

Gulf of Mexico. Activity has been at historically low levels in the Gulf over the last several years, and 2016 was the lowest yet, with just 117 wells tallied. However, a core of deepwater development activity has continued, and it will continue to form the bulk of work in the Gulf. World Oil projects that drilling will increase about 9%, to 128 wells.

Oklahoma. During 2017, drilling in the state, home to the emerging SCOOP and STACK plays, is expected to increase 38.5% overall, with 1,809 wells scheduled for an average TD of around 11,600 ft.

North Dakota. Based on figures from state officials and a proprietary survey of operators, World Oil forecasts that drilling in North Dakota will total 925 wells in 2017, accounting for 18.7 MMft of hole. Average well depth, including lateral sections, will be approximately 20,250 ft.

Louisiana. Drilling in the northern half of the state is expected to be up a stout 31.2%. Meanwhile, in the state’s southern half, featuring conventional oil and deep gas wells, activity is recovering at a more measured pace. Wells drilled are forecast to increase 12.8%, to 123.

Northeastern states. In Pennsylvania, operators plan to drill 774 wells for a 29% increase. In Ohio, drilling should increase 19.1%, to 380 wells. And in neighboring West Virginia, gas-targeted activity is on the rebound, with about half of the wells in the Marcellus. Total wells should reach 245, up 21.9%.

Rocky Mountain states. As operators boost drilling in the prolific Niobrara shale, particularly in the DJ basin, Colorado will see its wells drilled rise 34.0%, to 1,012 wells. New Mexico should see its wells drilled total 710, for an impressive 40.6% increase.

California/Alaska. Drilling in California, the bulk of which is accounted for by just four firms, is expected to improve about 30%, to 892 wells. Meanwhile, in Alaska, drilling is forecast to increase 15.2%, to 167 wells.

Freezing Central Asia pulls low-density Russian gasoil away from Med

Black Sea gasoil streams for export to the Mediterranean market have become more dense over the winter as Central Asia gets first pickings of Russian gasoil with better cold properties -- and by its very nature, lower densities.

As a consequence, the remaining gasoil streams offered to traders that operate in the Mediterranean basin have increasingly been higher-density material.

Sources say the cold weather across Central Asia has resulted in a shift for heating fuel which has driven the recent redistribution of product across end consumer markets.

With more higher density streams on offer to the Mediterranean market, blenders have needed to rethink their blending economics, and the streams used to meet certain consumer requirements.

The science of blending becomes ever more important as bespoke grades within the Mediterranean basin become increasingly prevalent.

In particular there has been an increase in demand from North Africa for 0.1% gasoil, in recent months, including the addition of Tunisia to the 0.1% sulfur-content pool.

The premium of Mediterranean 0.1% gasoil cargoes to ICE low-sulfur gasoil futures was assessed 50 cents higher on the day Thursday at $5.00/mt.

The Tunisian grade applies a cap on the density, which is lower than standard tenders issued elsewhere in the region. A maximum density of 845 kg/cu m, required by the Tunisian tenders, means blenders need to carefully consider the gasoil streams used for blending.

On trading with Tunisia, deliveries are done on an "as is" basis; meaning that no density escalator or de-escalator is applied as in other shorts in the regions.

"It is a really difficult specification that Algerian...and Tunisian specifications," the trader said.

While some results have missed the mark after attempts at blending, on the whole, there are healthy supplies of gasoil streams available for blending. The optionality from the Black Sea makes blending for North Africa a feasible proposition, a second trader said.

InterOil urges shareholders to back ExxonMobil deal

Papua New Guinea-focused player InterOil on Monday called on shareholders to vote for the proposed $2.5 billion takeover by the US-based energy giant ExxonMobil.

InterOil said in a statement it urged shareholders to follow the recommendations of proxy advisory firms, Institutional Shareholder Services, and Glass Lewis & Co., by voting “FOR” the proposed transaction with ExxonMobil in connection with the upcoming special meeting scheduled for February 14, 2017.

Shareholders are encouraged to vote “FOR” the ExxonMobil transaction on Monday, but no later than February 10.

In its report issued on Friday, ISS said that “a vote ‘FOR’ the proposed arrangement is warranted based on a review of the terms of the transaction, in particular, the reasonable strategic rationale, the superior transaction terms (compared to the Oil Search agreement), and the improved disclosure and transaction review process.”

The report noted that it appears that the board conducted an adequate strategic review process that resulted in significant disclosure improvements and that addressed concerns raised by the Court of Appeal.

Glass Lewis added in its report that the board received a new fairness opinion in connection with the Amended Arrangement that provides meaningful disclosure, saying that the proposed consideration implies a significant premium to the unaffected closing price of InterOil shares prior to the announcement that the company had agreed to be acquired by Oil Search.

“Based on the foregoing factors and the support of the board, we believe the proposed transaction is in the best interests of shareholders,” the advisory firm said.

Pertamina to go solo on Balongan refinery

Indonesian energy company Pertamina will proceed with an upgrade of its Balongan refinery without a partner, company officials said on Monday

The decision to go it alone on the project, which is on the north coast of Java, comes after the expiry in November of an initial agreement with Saudi Aramco from 2015 on upgrades of the Balongan and Dumai refineries. The state-owned Saudi oil company had expressed an interest in the project as recently as December.

"The process of forming a partnership was taking a long time," Pertamina CEO Dwi Soetjipto told Reuters, when asked why the state-controlled Pertamina had decided against working with Aramco on Balongan. "This is really needed," he said referring to the upgrade.

Soetjipto said the decision would ensure that Pertamina could avoid importing low sulphur waxy residue that would be in short supply without the upgrade.

Pertamina's investment in Balongan, however, would be "less than initially planned," Soetjipto said. He said that the expansion at the refinery would be "linked to Pertamina's financial condition."

The company's petrochemicals and megaprojects director Rachmad Hardadi, speaking at a briefing on Pertamina's refinery projects, said Aramco had "already accepted," Pertamina's decision.

"(Aramco) have committed to speed up work on Cilacap," Hardadi said, referring to Indonesia's biggest refinery, which Pertamina is upgrading in partnership with Aramco and aims to complete this in 2021.

The upgrade of the Balongan refinery, which will be completed in two stages, will roughly double its crude capacity to 240,000 barrels per day (bpd) from around 125,000 bpd at present, Hardadi said, and completion is due in 2020.

The $1.2 billion first stage of the upgrade aims to enable Pertamina to process medium crude at the plant with a sulphur content of 0.4 to 0.5 percent, Hardadi said.

"In the second stage we will make improvements so it can process sour crude and be more competitive on costs," he said.

Pertamina is still considering whether to partner with Aramco in the second stage of the upgrade, Soetjipto said.

The company is also still considering whether to find a partner for an upgrade at the Dumai refinery, he said, noting that this was not a top priority and was not expected to be completed until 2024.

"It's also related to financial issues," he said.

Pertamina expects to decide in April on a partner to take up to a 90 percent stake in the Bontang grassroots refinery and petrochemical plant project, which it estimates to be worth $8 billion. The company is aiming to complete this project in 2023.

The Chevron-operated giant Gorgon LNG plant on Barrow Island offshore Western Australia has shipped 39 cargoes of LNG up to date, Chevron’s CEO John Watson said.

Production at the $54 billion Gorgon LNG project has been hit several times since it shipped its first cargo of the chilled fuel on March 21.

The LNG facility faced four production interruptions in March, July, in the beginning of November, and in late November.

Watson said during a conference call discussing Chevron’s fourth-quarter results that the Gorgon Train 1 and Train were producing at a “stable” rate, near full capacity.

Output from the two LNG units was over 200 millions barrels of oil equivalent per day and 100 million cubic feet per day of domestic gas, the CEO said.

Out of total 39 cargoes from Gorgon, ten have been shipped since the beginning of this year.

“Train 1 ramp-up was below expectations as we worked through start-up issues… All learnings from Train 1 were applied to Train 2 and consequently, Train 2 ramped up to 92 percent capacity within a week and continues to exceed expectations,” Watson said.

Construction on Gorgon Train 3 was completed and Chevron is currently commissioning the last unit.

“We expect first LNG early in the second quarter of this year,” Watson said.

Once in full production, the three-train plant on Barrow Island is expected to have a capacity of 15.6 million mt/year.

Chevron’s second LNG project in Australia located near Onslow is expected to ship its first cargo of the chilled fuel in the middle of this year.

To remind, Chevron in October announced a $5 billion cost blowout for its Wheatstone LNG project blaming late arrivals of modules. Wheatstone project costs are now around $34 billion.

Watson said during the conference call that Wheatstone’s onshore plant was making good progress with all modules for the two trains in position and the plant site was “under permanent power.”

“Ongoing hook up and commissioning of the offshore platform is the critical path activity,” he said, adding that the company is leveraging experience from Gorgon and incorporating into ongoing activities.

Eighty percent of the Wheatstone project’s foundation capacity will be fed with natural gas from the Wheatstone and Iago fields, which are located about 200km north of Onslow off Western Australia’s Pilbara coast. The remaining 20 percent of gas will be supplied from the Julimar and Brunello fields.

Federal pipeline regulators this week approved the construction of Atlantic Bridge, a $450 million project designed to expand the transport of natural gas from the Marcellus shale basin into New England and the Canadian Maritimes.

The Federal Energy Regulatory Commission on Jan. 25 issued a certificate of public convenience and necessity to Spectra Energy for a set of proposed upgrades and new construction spanning four states.

Plans includes 6.3 miles of 42-inch pipeline in New York and Connecticut, new and expanded compressors -- including a major facility in Weymouth -- and various meter station upgrades, including one in Westbrook, Maine.

The Atlantic Bridge would beef up the Algonquin Gas Transmission and Maritimes & Northeast systems to boost capacity by around 133 million cubic feet per day. The Maritimes pipeline, which now pushes gas southward from Canada to Massachusetts, would be reversed to head north.

The Weymouth compressor station has face stiff opposition. Mayor Robert Hedlund last summer rejected a $47 million siting deal from Spectra. In December he filed a lawsuit challenging the underlying real estate transaction for the 7,700-horsepower project. Hedlund said Wednesday that Weymouth will appeal the FERC decision.

GasLog Partners posts highest ever quarter profit

GasLog Partners, the New York-listed spinoff of LNG shipper GasLog reported increased profits for the fourth quarter and the full year of 2016.

According to the company’s latest quarterly report, the net profit in the three months ended December 31, reached $24,8 million 22.3 percent up from $20.3 million during the corresponding period in 2015.

Net profit for the year 2016 increased to $77.3 million, 18.8 percent up from $65 million in 2015.

Speaking of the results, Andrew Orekar, GasLog Partners’ CEO said that the company delivered its highest-ever quarterly and annual results.

The report notes that with a significant forecast increase in LNG supply and a growing number of new demand centers, GasLog’s demand outlook for LNG carriers with long-term charters remains positive.

The company added that new LNG volumes will create demand for additional ships over and above those currently available in the market.

In the shorter-term shipping market in the fourth quarter, brokers reported that spot rates in the Atlantic Basin increased to approximately $45,000 per day, with one end of year fixture reported above $50,000.

The catalyst was greater ton-mile demand with many cargoes going from the US to Asia through the Panama Canal. Spot charter terms have also improved with round trip economics now seen on some short term voyages. In the Pacific Basin, reported rates were lower at around $38,000 per day than the Atlantic, largely due to the greater availability of vessels during the period.

During the quarter, U.S. natural gas prices increased 30 percent to $4 per million British thermal units. However, Northeast Asian LNG prices rose by 60 percent to approximately $10 per mmbtu due to a cold start to winter in key demand centers such as Japan, China and Korea.

OPEC Convinces Investors That Its Oil Output Cuts Are Real

OPEC appears to have persuaded investors that it’s making good on promised production cuts.

Money managers are the most optimistic on West Texas Intermediate oil prices in at least a decade as the Organization of Petroleum Exporting Countries and other producers reduce crude output. Saudi Arabia has said more than 80 percent of the targeted reduction of 1.8 million barrels has been implemented. Oil shipments from OPEC are plunging this month, according to tanker-tracker Petro-Logistics SA.

“All the signs are pointing to a pretty significant OPEC cut,” Mike Wittner, head of commodities research at Societe Generale SA in New York, said by telephone. “Until this week we were only getting data from the producers, now the tanker traffic seems to be supporting this view.”

OPEC will reduce supply by 900,000 barrels a day in January, the first month of the accord’s implementation, said the Geneva-based Petro-Logistics. That’s about 75 percent of the cut that the producer group agreed to make. Eleven non-members led by Russia are to curb their output in support.

Hedge funds boosted their net-long position, or the difference between bets on a price increase and wagers on a decline, by 6.1 percent in the week ended Jan. 24, U.S. Commodity Futures Trading Commission data show. WTI rose 1.3 percent to $53.18 a barrel in the report week. The U.S. benchmark lost 0.5 percent to $52.93 at 12:21 p.m. Singapore time on Monday.

OPEC members Saudi Arabia, Kuwait and Algeria have said they’ve cut output this month by even more than was required, while Russia said it’s curbing production faster than was agreed. Saudi Arabia Energy Minister Khalid Al-Falih said on Jan. 22 that adherence has been so good that OPEC probably won’t need to extend the accord when it expires in the middle of the year.

Shale Headwind

The OPEC-engineered price rally has spurred a surge in drilling in the U.S. shale patch. Rigs targeting crude in the U.S. rose by 15 to 566 last week, the highest since November 2015, according to Baker Hughes Inc.

“There’s one headwind in the oil market: increased U.S. shale production,” Jay Hatfield, a New York-based portfolio manager of the InfraCap MLP exchange-traded fund with $175 million in assets, said by telephone. “U.S. output in 2017 will be 1 million barrels a day higher than last year.”

U.S. crude production climbed to 8.96 million in the week ended Jan. 20, the highest since April, according to the Energy Information Administration. That’s already closing in on the EIA’s latest 2017 output forecast of 9 million barrels a day that was issued Jan. 10.

The net-long position in WTI rose by 21,429 futures and options to 370,939, the most in data going back to 2006. Longs rose 3.7 percent to a record high, while shorts slipped 11 percent.

“For the time being the market is more focused on the OPEC cuts than about how fast U.S. shale drillers are returning,” Wittner said. “There may come a point soon when the support provided by OPEC will be outweighed by the prospect of rising U.S. production. When that happens there will be a big shift in investor sentiment.”

Resignation Threatens to Bring Federal Pipeline Rulings to Halt

A U.S. energy regulator filed his letter of resignation on Thursday. And with that letter, he may have just brought federal decisions on multibillion-dollar natural gas pipelines to a halt.

Norman Bay said he’ll leave the Federal Energy Regulatory Commission effective Feb. 3. His announcement followed President Donald Trump’s decision to replace him as the agency’s chairman with his fellow commissioner, Cheryl LaFleur.

With Bay’s departure, the commission will have just two commissioners and will lack the quorum needed to decide on everything from controversial gas pipeline projects to contested utility mergers. His resignation comes just as developers are rushing to build a network of pipelines to accommodate booming gas production from shale reserves in the Northeast, unlocking bottlenecks that have caused prices to plunge.

Among the pipelines waiting for approval are: Energy Transfer Partners LP’s Rover project; the PennEast shale line being built by a group of companies including UGI Corp. and Spectra Energy Corp.; and the Atlantic Sunrise system by Williams Partners LP. Spectra Energy’s Nexus system and National Fuel Gas Co.’s Northern Access expansion may also be affected.

"Basically, if they don’t have a certificate by Feb. 3, they don’t get to start construction in the fall," Christi Tezak, managing director of Washington-based industry consultant ClearView Energy Partners, said in a phone interview.

The pipeline developers didn’t immediately respond to requests for comment left after business hours.

Filling Seats

LaFleur, a Democrat and former utility executive, has been on the commission since 2010. The panel has been running with three Democrats since the resignation of Tony Clark, a Republican, last year. The only other commissioner is Colette Honorable. Bay didn’t immediately respond to a telephone request for comment left after business hours.

Filling the panel’s three vacancies will take time. The U.S. Senate still hasn’t confirmed the bulk of Trump’s chosen cabinet. Even a speedy confirmation process could take 30 to 60 days, according to David Wochner, a partner at the Washington-based law firm K&L Gates. That may lead to costly delays for companies awaiting their pipeline certificates.

"For those guys, a month matters," said ClearView’s Tezak.

One name repeatedly floated as a likely pick by analysts including ClearView to fill the next vacancy is Neil Chatterjee, senior energy adviser to Senate Majority Leader Mitch McConnell and a former lobbyist for National Rural Electric Cooperative Association. His relationships on Capitol Hill may expedite the confirmation process -- but not significantly.

"If President Trump and Senator McConnell tomorrow were to meet and say this is high priority, I still would expect it’s going to be in the 60-day time frame," Wochner said. "The Senate will be occupied with more significant votes. The cabinet will be first priority."

Opec Cuts

OPEC Convinces Investors That Its Oil Output Cuts Are Real (2)

OPEC appears to have persuaded investors that it’s making good on promised production cuts.Money managers are the most optimistic on West Texas Intermediate oil prices in at least a decade as the Organizationof Petroleum Exporting Countries and other producers reducecrude output. Saudi Arabia has said more than 80 percent of thetargeted reduction of 1.8 million barrels a day has been implemented. Oil shipments from OPEC are plunging this month,according to tanker-tracker Petro-Logistics SA.

“All the signs are pointing to a pretty significant OPEC cut,” Mike Wittner, head of commodities research at SocieteGenerale SA in New York, said by telephone. “Until this week we were only getting data from the producers, now the tankertraffic seems to be supporting this view.”

OPEC will reduce supply by 900,000 barrels a day in January, the first month of the accord’s implementation, saidthe Geneva-based Petro-Logistics. That’s about 75 percent of the cut that the producer group agreed to make. Eleven non-membersled by Russia are to curb their output in support.Hedge funds boosted their net-long position, or the difference between bets on a price increase and wagers on a decline, by 6.1 percent in the week ended Jan. 24, U.S. Commodity Futures Trading Commission data show. WTI rose 1.3 percent to $53.18 a barrel in the report week. The U.S. benchmark slipped 0.3 percent to $53.01 at 9:18 a.m. London time on Monday.

OPEC members Saudi Arabia, Kuwait and Algeria have said they’ve cut output this month by even more than was required,while Russia said it’s also curbing production faster than was agreed. Saudi Energy Minister Khalid Al-Falih said Jan. 22 thatadherence has been so good that OPEC probably won’t need to extend the accord when it expires in the middle of the year.

Shale Headwind

The OPEC-engineered price rally has spurred a surge in drilling in the U.S. shale patch. Rigs targeting crude in theU.S. rose by 15 to 566 last week, the highest since November 2015, according to Baker Hughes Inc.“There’s one headwind in the oil market: increased U.S. shale production,” Jay Hatfield, a New York-based portfoliomanager of the InfraCap MLP exchange-traded fund with $175 million in assets, said by telephone. “U.S. output in 2017 willbe 1 million barrels a day higher than last year.”

U.S. crude production climbed to 8.96 million barrels a day in the week ended Jan. 20, the highest since April, according tothe Energy Information Administration. That’s already closing in on the EIA’s latest 2017 output forecast of 9 million barrels aday that was issued Jan. 10. The net-long position in WTI rose by 21,429 futures and options to 370,939, the most in data going back to 2006. Longs rose 3.7 percent to a record high, while shorts slipped 11percent.

In fuel markets, net-bullish bets on gasoline fell 3.4 percent to 61,511 contracts as futures decreased 1.5 percent inthe report week. Money managers increased wagers on higher ultra low sulfur diesel prices by 1.3 percent to 34,978 contracts,while futures slid 0.4 percent. “For the time being the market is more focused on the OPEC cuts than about how fast U.S. shale drillers are returning,” Wittner said. “There may come a point soon when the support provided by OPEC will be outweighed by the prospect of rising U.S. production. When that happens there will be a big shift in investor sentiment.”

Attached Files

Chevron badly misses profit forecasts

Chevron badly misses profit forecasts

The company reported fourth-quarter earnings of $415 million, or 22 cents a share, on revenue of $31.5 billion. Analysts had expected Chevron to earn 64 cents on revenue of $33.3 billion, according to a consensus estimate from Thomson Reuters.

"Our 2016 earnings reflect the low oil and gas prices we saw during the year," Chairman and CEO John Watson said in a statement. "We responded aggressively to those conditions, cutting capital and operating expenses by $14 billion."

In the year-ago period, Chevron reported a loss of $588 million, or 31 cents a share, shortly before oil prices hit 12-year lows.

Low crude oil and gas prices throughout much of 2016 pushed the oil giant to a loss for the year. For 2016, Chevron reported a loss of $497 million, or 27 cents a share.

Cash flow, a key measure of corporate health in the oil and gas industry, was $12.8 billion in 2016, down from $19.5 billion the previous year.

Chevron spent $22.4 billion on capital projects and exploration last year, down from $34 billion in 2015, reflecting the industry trend of reducing expenses to weather the downturn.

Chevron saw results improve from the year-ago period in its upstream business, which includes exploration and production of fossil fuels. The company chalked that up to lower exploration and operating expenses and its oil and gas fetching a higher price.

Oil prices stabilized above $50 a barrel in the fourth quarter after OPEC and other major oil producers agreed to cut production.

In the downstream segment, which includes refining and marketing fuel, Chevron saw fourth-quarter profits slide both in the United States and abroad. The company broke even in its U.S. downstream business, compared with profits of $496 million a year ago.

Integrated oil companies such as Chevron have seen their refining margins shrink on the rising price of crude oil, the raw material for many fuels. Throughout much of the oil price downturn that began in 2014, low crude costs boosted refining margins.

Revenues for the quarter were $30 billion, up 7 percent from sales of $28 billion a year ago.

RANGE RESOURCES CORPORATION announced today that proved reserves as of December 31, 2016 were 12.1 Tcfe. Reserves

Highlights –

Proved reserves increased 11%, excluding acquisitions and divestituresProved developed reserves increased 14%, excluding acquisitions and divestituresDrill-bit development cost with revisions is expected to be $0.34 per mcfeFuture development costs for proved undeveloped reserves are estimated to be $0.42 per mcfe; Marcellus costs are estimated to be $0.37 per mcfeUnhedged recycle ratio improves to over 3x based on future development costs of $0.42 per mcfe

Commenting on Range’s 2016 proved reserves, Jeff Ventura, Range’s CEO, said, “Range had another solid year of reserve growth, replacing 292% of production from drilling activities with drill-bit development costs of $0.34 per mcfe when considering pricing and performance revisions. Positive performance revisions continued in 2016 as we extended laterals, improved targeting and drove efficiencies throughout our developed leasehold and infrastructure. The strong reserve additions from drilling activity were driven primarily by our development in the Marcellus, as our acquisition of North Louisiana assets closed in late 2016. Future development costs for proven undeveloped locations are estimated to be $0.42 per mcfe, which is outstanding and should improve our top tier unhedged recycle ratio to over 3x. Importantly, Range added 1.65 Tcfe of reserves, excluding acquisitions, reflecting our large inventory of low-risk, high- return projects in the Marcellus shale and in North Louisiana.”

“In North Louisiana, performance in 2016 was in line with our acquisition economics and the properties recorded a slight performance increase, while drilling added 79 Bcfe of reserves post-acquisition. Looking forward, we see capital efficiencies continuing as we drive down well costs while optimizing targeting. Our reserve booking philosophy on the newly acquired assets is consistent with our approach in the Marcellus. As a result, a relatively small portion of the Company’s future development capital, only $2.2 billion over the next five years, is allocated to proven locations, while the remainder of capital delineates our extensive acreage position, still classified as unproven. In fact, less than 0.5 offset proven undeveloped locations are currently recorded in the Marcellus and North Louisiana for each horizontal producing well. We believe this will generate consistent SEC reserve growth over time as additional acreage is classified as proven and capital is allocated to offset locations. As an example, Range has approximately 740 Bcfe of additional reserves in the Terryville area that would be included as SEC proved reserves if included within the five-year development plan. Our economic resilience is further demonstrated in the year-end SEC PV10reserve value of $9.0 billion using future strip prices and current sales contracts. With 56% of SEC reserves being proved developed (PD), our PD reserve life and debt per PD reserve ratios remain exceptionally strong.”

Range’s estimate of costs incurred during 2016, excluding acquisition costs is approximately $570 million. This is on target with Range’s previously announced capital budget of $495 million, prior to the Memorial acquisition.

Algeria's Skikda LNG export plant restarted Thursday: Sonatrach CEO

The shutdown was scheduled to last until February, Mazouzi said in a company statement. The 4.7 million mt/year plant went down at the end of December due to a heat exchanger issue, according to a company source. Since the outage, Sonatrach has been meeting its contractual supply obligations by sending LNG from the smaller Arzew export plant.

Mazouzi strongly criticized alleged comments that the break in LNG supplies from Algeria, due to the work at Skikda, to southwestern France added to a natural gas shortage in France.

"Algeria is a reliable supplier of gas," Mazouzi said. "We have fulfilled all our commitments and responded to all requests agreed upon between [Sonatrach and French customer Engie], particularly in January and even during the technical shutdown of the liquefaction unit at Skikda."

Mazouzi also cited the unexpected cold spell accompanied by a very high demand.

"Everyone then fetched gas, and Algeria was a very reliable supplier and helped export some of this European demand," he said.

Platts JKM for spot deliveries into Northeast Asia for March ended the Asian trading week at $7.75/MMBtu Friday, down 17.5 cents from last Friday, as extra March supply continued to be marketed in the region, and recent March deals were heard done below $8/MMBtu.

At the start of the week, Papua New Guinea was heard to have awarded its sell tender for a mid-March and early April delivery cargo. The mid-March cargo was heard awarded close to, or even above, $8/MMBtu.

Near the middle of the week, firmer demand for prompt cargoes delivered to Europe due to cold temperatures and pipeline supply issues in that region provided some support to the prompt market.

The most recent cargo from Angola LNG for late January delivery to Europe was heard sold to Gas Natural Fenosa, at above $9/MMBtu.

At the same time, demand from end-users in North Asia remained lackluster for March. By Friday, various traders were reporting deals done recently for H1 March, one of which was done at mid- to high-$7s/MMBtu, although this was not widely reported.

Additional supply was about to hit the market, sources said, with PNG likely to offer another cargo.

Meanwhile, Petronas was also heard to be marketing a first-half March cargo out of its portfolio, which would include both Bintulu and its floating LNG facility, PFLNG, but this could not be confirmed with the company.

China's Sinopec was offering cargoes for February and March delivery from the Australia Pacific LNG project, multiple sources said. Similarly, some other end-users in Japan were also heard to be looking to sell some cargoes.

In Southeast Asia, Thailand's PTT issued a buy tender Wednesday for an early March delivery cargo. The tender is scheduled to close on January 27. Thai PTT's buy tender was expected to draw a number of sellers given the lack of demand across the rest of Asia, sources said.

In shipping, CNOOC's terminal in Tianjin had successfully replaced its FSRU, the GDF Suez Cape Ann, with the Neo Energy on January 20, and subsequently received its first cargo of the year aboard the Solaris, which docked at the terminal January 21, according to S&P Global Platts shiptracking software cFlow.

Iran lifts crude oil output to 3.9 mil b/d, supporting rising exports

Speaking on the sidelines of a government cabinet meeting Wednesday, Bijan Zanganeh indicated that Iran was closing in on its target of restoring output to the level of 4 million b/d the country produced before the 2012 imposition of international nuclear sanctions specifically targeting Iran's petroleum and financial sectors, while exceeding its deemed OPEC production ceiling of just under 3.8 million b/d following the group's decision in November to cut output by about 1.2 million b/d.

Zanganeh's latest estimate of Iranian crude production closely follows news Tuesday that two Iranian VLCCs were heading towards Rotterdam for the first time in five years to offload 4 million barrels of crude next month at the Dutch port.

Trading sources said the 317,367 dwt VLCC Huge (2008-built) and 318,021 dwt VLCC Snow (2012-built) would be arriving around February 7 and February 11 respectively to unload a mix of Iranian heavy and light crude grades at Rotterdam.

Currently, both the Panama-flagged Iranian VLCCs are located in the South Atlantic, after passing through the Cape of Good Hope, according to S&P Global Platts trade flow software cFlow.

In 2012, the EU banned imports of Iranian crude by its member countries and also the provision of EU-linked insurance, including protection and indemnity cover for any shipments of Iranian crude, regardless of destination.

RISING EXPORTS

However, Iranian crude exports are now on the rise.

In September, Iranian VLCC departures hit their highest level since sanctions were lifted a year ago, according to cFlow.

Iran is targeting oil production of 4 million b/d by the end of this Iranian year (March 20, 2017), supported by plans to launch in October its first bid round for oil and gas development contracts using a newly revised upstream contract. The Iranian oil ministry had said that in September 2016 the the country's oil production had reached 3.85 million b/d.

Zanganeh's statement Wednesday indicated a further 500,000 b/d rise in production even other major oil producers from within and outside OPEC make cuts after 24 producers, including Iran, agreed in December to cut around 1.8 million b/d of total crude output from January for six months.

The output cuts largely revolve around medium to heavy sour crude grades, with a number of OPEC producers, especially Saudi Arabia, informing their customers that they would potentially affect term loadings.

Iran, while a member of OPEC, is allowed as part of the related OPEC deal to increase its production slightly to 3.797 million b/d, after producing 3.72 million b/d in December, secondary sources said

OIL DEVELOPMENT FRAMEWORK DEALS CONFIRMED

Zanganeh confirmed Wednesday that an international consortium comprising France's Total, China National Petroleum Corp. and Iran's Petropars had signed a heads of agreement for developing Phase 11 of the huge South Pars offshore gas field, Shana reported.

Another heads of agreement had been signed with a local company, Persian Oil and Gas Co., for developing the major Yaran, Maroon and Koupal onshore oil fields in Iran's Wes Karoun region, he added.

All four fields fall in the category of "shared fields," due to their extension across international borders, to which the ministry has assigned top priority for development.

South Pars, containing large volumes of condensate in addition to an estimated 500 Tcf of gas reserves, or about half Iran's total proved gas reserves, straddles the country's Persian Gulf maritime border with Qatar and is part of the world's largest conventional gas reservoir.

Qatar calls its side of the deposit North Field.

Gas production from South Pars stood at around 500 million cu m/d in early January, up from 285 million cu m/d at the end of 2013, and Iran has announced plans to add another 45 million cu m/day before the end of March.

Much of the condensate produced from the field is blended with heavy Iranian crudes for export.

The three oil fields mentioned Wednesday by Zanganeh are located in Iran's West Karoun region and straddle the country's land border with Iraq.

In 2016, about 225,000 b/d of crude was being produced from West Karoun fields, which also include the giant South and North Azadegan and Yadavaran fields. The ministry is seeking to raise that to 315,000 b/d by March.

National Iranian Oil Co. managing director Ali Kardor said Tuesday that NIOC would issue a tender for the development of South Azadegan in the "near future."

Fires Spark a Double Bonanza for Oil Refiners

Oil refiners from Japan to the U.S. are benefiting from being forced by fires to make less fuel.

A slew of blazes at plants across the globe is shrinking supplies and boosting profits from turning crude into products such as gasoline and diesel. At least 13 refineries, including in Ruwais in Abu Dhabi, Deer Park in Texas and Tuapse in Russia with a combined capacity of about 1.8 million barrels a day, were struck by fire this month, according to data compiled by Bloomberg. That’s more than double the five plants affected last month.

Bloomberg data

The unexpected incidents are offering refiners a double windfall as it coincides with declining global fuel inventories amid solid demand. Total oil-product stockpiles in developed countries fell in November for a fourth month, with a “hefty” drop in middle distillates such as diesel in Europe, according to the International Energy Agency. If such outages continue, unusual intercontinental flows of fuels may occur this year, according to industry consultant FGE.

“These fires were certainly not expected, and when they happen, they help cracks,” said FGE analyst Sri Paravaikkarasu from Singapore. The incidents “definitely boosted overall market sentiment. Demand growth is still strong. Any small outage is helping to boost margins,” she said.

Processing profits in Singapore, a regional benchmark, averaged $7.25 per barrel in January, up from $6.70 a barrel in December, Paravaikkarasu estimates. If it had not been for fires, margins would have been 60 cents to $1 a barrel lower this month, she said. Average returns in Europe jumped to $2.68 a barrel from 78 cents a barrel, with U.S. rates 3.7 percent higher to $11.28, according to Bloomberg data.

Unexpected Disruption

An event like a blaze -- an unexpected disruption to supply -- is affecting margins to a greater extent this time around than two years earlier as global stockpiles have shrunk and the pace of additions to refining capacity has slowed, according to Paravaikkarasu.

Diesel inventories in China, the world’s biggest energy user, slipped to 5.81 million metric tons in December, the least on record, according to data from Xinhua’s China Oil, Gas and Petrochemicals newsletter. Fuel oil stockpiles in Singapore, a regional hub of oil trading, dropped to a two-year low earlier this month, official data show.

Global fuel demand will rise by 1.4 million barrels per day in the first quarter from a year earlier, exceeding a “modest ” gain of 310,000 barrels per day in refinery processing rates, the IEA estimates.

The fires can prompt fuel to travel to more unusual, distant customers, offering a money-making opportunity for traders seeking to take advantage of price differentials between the East and the West.

“If there are refinery glitches in the East, refiners in the West have to make up for the loss in Asia, which results in higher profits in Europe,” said Ehsan Ul-Haq, principal consultant at KBC Advanced Technologies.

Abu Dhabi National Oil Co. has sold a cargo of straight-run residual fuel oil to Cargill Inc. after a blaze at its Ruwais refinery earlier this month forced the company to export excess fuel that was to be processed at halted units. The shipment is going to a Chinese independent refiner, according to traders with knowledge of the matter.

“Internationally such reshuffling is much easier as fuel specifications are simpler and there are many grades consumed in various places,” John Vautrain, head of consultant Vautrain & Co., said of intercontinental flows known as arbitrage trades.

Margins may weaken in the second and third quarters before recovering in the final period to levels seen in the first quarter, according to KBC.

FGE’s Paravaikkarasu sees Singapore margins in the range of $6 to $7 a barrel at least until the third quarter. “We’re a little bit higher currently because of the fires,” she said.

Attached Files

Nigeria Tells Shell, Eni to Temporarily Cede Oil Field Control

A Nigerian court has ordered Royal Dutch Shell Plc and Eni SpA to cede control of a jointly owned oil license to the government amid an investigation into how they purchased the asset.

The companies’ control of Oil Prospecting License 245 is suspended pending "investigation and prosecution of suspects" including companies and individuals accused of possible "acts of conspiracy, bribery, official corruption and money laundering," according to documents from the Federal High Court in Abuja.

“We are aware of media reports but we have not received any notification,” Eni said in an e-mailed statement. “Eni denies any wrongdoing in respect of its acquisition of a participation interest in the block OPL from the Nigerian government."

Nigeria’s Economic and Financial Crimes Commission, which has been investigating the sale of the license, requested the suspension, spokesman Wilson Uwujaren said by phone. He couldn’t say when the agency would complete the probe.

In 2011, Shell and Eni paid $1.1 billion for OPL 245 to Malabu Oil & Gas Ltd., a company controlled by Dan Etete, a former oil minister. Located in the deep offshore waters of the Gulf of Guinea, it is estimated to hold at least 9 billion barrels of crude reserves worth $1 trillion, according to a report by a House of Representatives committee. Nigerian lawmakers said in 2013 that the sale should be revoked because the sale process was flawed.

Nigeria is Africa’s largest oil producer, with Shell, Exxon Mobil Corp., Chevron Corp., Total SA and Eni running joint ventures with state-owned Nigerian National Petroleum Corp. that pump more than 90 percent of the country’s oil. The West African nation produced 1.45 million barrels a day of oil in December, according to data compiled by Bloomberg.

Attached Files

Shell set to sell $3 billion North Sea assets to Chrysaor

Royal Dutch Shell is nearing the sale of a large part of its North Sea oil and gas assets to private equity-backed Chrysaor for $3 billion, banking sources said, marking a milestone in its drive to reduce debt after buying BG Group.

Chrysaor, a North Sea-focused oil company backed by private equity fund EIG Partners, will acquire from Shell a mix of older fields, new developments and infrastructure in a move analysts say could breathe new life into one of the world's oldest offshore basins where production has been in a steady decline since the late 1990s.

The anticipated deal in what is a relatively high-cost region has been seen by the industry as a litmus test for the sector's appetite for buying and selling oil and gas fields, known as upstream, as it slowly emerges from a brutal two-and-a-half year downturn. It could now unlock other deals in the North Sea and other regions.

The deal is expected to be announced in the coming days to coincide with Shell's full-year results on Feb. 2, several sources said.

Chrysaor will take charge of hundreds of Shell and former BG employees that work on the platforms.

It will also become operator of several fields, highlighting the changing landscape in the North Sea where oil majors such as Shell and BP are finding it harder to make profits.

In November, Austrian oil and gas group OMV agreed to sell its UK unit to private-equity backed Siccar Point Energy for $1 billion.

Chrysaor has been given the green light by Britain's Oil and Gas Authority regulator to operate fields in the North Sea. The deal also includes an "innovative" structure to tackle the expensive and complex decommissioning of platforms and infrastructure once production in fields is ended, sources said.

For the Anglo-Dutch company, the deal could kick start a string of other upstream sales that have struggled to attract interest throughout the downturn to help it meet its $30 billion disposal target by around 2018 following the $54 billion acquisition of BG Group in February 2016.

Several companies have looked at Shell's North Sea portfolio in recent months including A.P. Moller-Maersk, petrochemical giant Ineos and private equity fund Carlyle Group, according to banking sources.

Shell's asset bundle includes a non-operating stake in Buzzard north of Aberdeen, a relatively new field that feeds into the global Brent oil benchmark and a share in Shell's 55 percent holding in the BP-operated Schiehallion oilfield some 110 miles (180 km) west of the Shetland Islands.

Other assets include the Nelson, Armada, Everest, Lomond and J Block fields, and Shell's stake in the Statoil-led Bressay development, according to banking sources.

Shell has sold or agreed to sell around $7.8 billion of assets since announcing the deal in April 2015, though the majority of them were in the refining sector and infrastructure.

Asia gasoline refiners set to recover after glut

Many Asian gasoline refiners have started to recover from one of the sector's worst-ever gluts, with profit margins climbing as consumption grows and as stricter fuel specifications in top consumers force some inefficient producers to cut supply.

A series of refinery fires and maintenance outages are also boosting demand for gasoline from facilities that are still operating.

The profit margin for refining gasoline, known in the industry as the 'crack', averaged $11.10 a barrel from Jan. 1-27, lower than $15.80 for the same period last year but higher than any other year on record. GL92-SIN-CRK

"The rally in Singapore margins since the beginning of the year was extended this week, and Singapore margins are up by 24 percent since the beginning of the year on a 4-week rolling average," investment bank Jefferies said in a note on Friday.

The juicy margins early last year were self-destructive as refiners ramped up gasoline production in a race for profit, prompting a crash in margins as so much fuel flooded the market that it had to be stored on chartered tankers.

But, a similar plunge in margins is not expected this year as facility outages will hold back some supply. They include an extended refinery outage in Abu Dhabi and two upcoming maintenance closures in Indonesia, Asia's top gasoline importer.

Further supporting gasoline margins have been several fires and other unplanned outages in places such as India, Japan, Singapore and the United Arab Emirates.

"Gasoline supplies will be tighter in 2017 versus 2016," said Nevyn Nah of consultancy Energy Aspects, adding that Asia's supply would exceed demand by 176,000 barrels per day (bpd) in 2017, versus 206,000 bpd in 2016.

A big longer-term driver for higher cracks are new regulations in the world's biggest car markets curbing the sulphur content of fuel.

China capped sulphur content in gasoline at 10 parts per million (ppm) from the start of the year, down from 50 ppm, with the United States expected to take similar steps.

"Changes in fuel specifications this year in the U.S., China and India are not trivial. Supplies will be impacted," said Nah.

Healthier returns for making other fuels like diesel could also prevent refiners from overproducing gasoline as they did in 2016.

Analysts said that gasoline markets were currently well balanced overall.

"We expect the gasoline market to be finely balanced through summer this year, which is quite supportive of cracks. Demand growth continues to be strong," said Sri Paravaikkarasu of energy advisory FGE.

Attached Files

Millions of barrels of Venezuelan oil stuck at sea in dirty tankers

More than 4 million barrels of Venezuelan crude and fuels are sitting in tankers anchored in the Caribbean sea, unable to reach their final destination because state-run PDVSA cannot pay for hull cleaning, inspections, and other port services, according to internal documents and Reuters data.

About a dozen tankers are being held back because the hulls have been soiled by crude, stemming from several oil leaks in the last year at key ports of Bajo Grande and Jose, which has resulted in delayed operations for loading and discharging.

Since debt-laden PDVSA cannot afford to have the ships cleaned, they have to wait for weeks to navigate international waters, delaying shipments.

Dirty tankers are the latest of a litany of problems weighing on PDVSA, the source of most of Venezuela's export revenue and critical to the government's budget.

Oil production and exports are currently at lows not seen in more than two decades. PDVSA's difficulty with paying creditors and service providers makes pulling itself out of that hole more onerous. That has contributed to a deep, years-long recession in the OPEC country.

As of Jan. 25, vessels carrying some 1.4 million barrels of crude, diesel, gasoline, fuel oil and liquefied petroleum gas were anchored in Venezuelan and Caribbean waters waiting for cleaning, according to PDVSA's trade documents, verified by Reuters shipping data. The company did not respond to a request for comment.

"PDVSA almost solved this situation in Bajo Grande in early December because it needed to drain inventories, but it is now taking at least three weeks to complete the cleaning," said an inspector at Lake Maracaibo, who was not authorized to speak to the press.

The dozen or so tankers that have not been cleaned are mostly from PDVSA's fleet of owned and leased vessels, according to a series of PDVSA's internal operational reports confirmed by Reuters vessel tracking data.

In addition, another 11 tankers in early January are being held up for "financial retention," a classification used by PDVSA in its internal reports to identify loaded vessels that have been embargoed or temporarily retained by port authorities, inspection firms or maritime agencies due to unpaid bills.

Those tankers, along with several smaller ones retained for other operational delays, are holding a combined 2.9 million barrels, according to the data.

The list includes the Aframax Hero, loaded in September with 520,000 barrels of fuel oil bound for China. The cargo is moored in Curacao, delayed by more than 100 days, until a payment to inspection firm Saybolt is made.

PDVSA's crude exports fell to 1.59 million barrels per day (bpd) in the last quarter of 2016 from 1.82 million bpd in the first quarter, a 13 percent decline, according to Thomson Reuters trade flows data. [tmsnrt.rs/2baTeGm]

DIRTY BUSINESS

Vessels started to become soiled by crude in PDVSA's ports last year amid intermittent oil leaks at Bajo Grande terminal in Venezuela's Lake Maracaibo, according to sources close to that operation.

Maritime laws prohibit stained tankers from navigating international waters until hull cleaning is performed. While PDVSA's debts to cleaning firms grow, the leaks have not been repaired, so dozens of vessels have traveled within the country in recent months, spreading the problem to other terminals, including Puerto la Cruz, La Salina, Cardon and Amuay, the documents state.

Cleaning, which is performed at the Guaranao Port, located close to Venezuela's largest refinery, has taken as much as two months in some cases, an inspector said.

A crude spill at Jose in January stained more tankers, this time affecting vessels waiting to load crude for exports.

PDVSA last week said the affected dock at Jose resumed operations, but there is a logjam of ships needing cleaning, affecting regular foreign buyers of Venezuelan crude, the inspector and a trader from a firm buying Venezuelan oil said.

Some of PDVSA's joint venture partners in projects in the Orinoco belt have proposed picking up part of the bill, paying cleaning companies in dollars to amortize debts faster and ease the bottleneck, but the state-run firm has refused due to its cash flow constraints, the trader said.

Attached Files

Deep dive in the Permian

Looking at these shares, there are a couple highlights as we enter 2016. American Energy Partners, representing less than 10% of the permit market throughout 2014 and most of 2015, increased their share to about 15% in November, December, and January. Parsley Energy, regularly held about 6% of the market in 2014 and 2015 before increasing their share to 14% in October, 12% in December, and 10% in January. In January, Apache Corporation and Fasken Oil and Ranch also experienced significant increases in their permit approval market, which were out of ordinary compared to their recent months.

Unfortunately, looking at the market share for smaller operators (grouped into the others category), in Jan-14 they represented just over half of the market compared to Jan-16 where they represent slightly more than 10% as smaller companies struggle to remain in business.

The top 20 market for completions have seen more gradual changes. Occidental, representing about 7% of the market on average throughout 2014 and 2015, increased their completion share to 13% in Dec-15. Anadarko Petroleum Corporation represented 1% of Permian completions through Aug-15 before increasing their share month over month through Dec-15. Matching their increase in permits, Parsley Energy represented ~2% of the market but in Nov and Dec, they increased their share and currently represent 6% of the Dec-15 completion market. On the other hand, Pioneer Natural Resources experienced an increase in market share in Oct-15 and Nov-15 but has not reported any completions in Dec-15 as of today. Fasken Oil and Ranch experienced a decreasing share of completions in Nov-15 and Dec-15, but still hold a larger share than they did throughout 2014 and 2015. Their elevated completion market share, combined with their increasing permit approvals in Jan-16 suggests they may likely be completing more Permian wells over the next couple of months.

Recruiting Picking Up in January 2017?

I have talked to several friends in the O&G recruiting industry. More than one has signed master service agreements in January. This seems like a good sign for a hiring pickup. Is hiring picking up for agencies relative to 4Q 2016?

Fortunately for us, rates for hands and service work has deflated significantly since 2014. Without the reduction in wages and expenses, we would not be hiring. I saw this in another post on Oilpro and I will repeat it here ... it is all about the money.

We have just started hiring at the field level and engaged several of our old field service vendors. Fortunately for us, rates for hands and service work has deflated significantly since 2014. Without the reduction in wages and expenses, we would not be hiring. I saw this in another post on Oilpro and I will repeat it here ... it is all about the money.

Between late December to early Jan I have had 3 approaches from three different agents for three separate Snr Completion roles, so I definitely think the answer is yes! (:

Most of the geology jobs I am applying for in Calgary have over 2000 applicants, which is daunting, but I have seen the number of geologist postings rise from two a month to two every week.

Attached Files

A number of European gas storage facilities could face closure in the coming years given the weak economics for operating sites across the continent, industry leaders said.

At the European Gas Conference in Vienna, officials from storage operators in Germany and Austria said the summer-winter spread -- historically wide to incentivize injections in the summer and withdrawals in the winter -- has narrowed considerably in recent years.

"There will be more closures in the future -- summer-winter margins are too low to keep these storage facilities [operational]," Holzer said.

Head of energy storage Austria at Germany's Uniper Michael Schmoltzer echoed his view.

"The economics say that you have to close your storage sites that do not cover their costs," Schmoltzer said.

"The summer-winter spread is putting us under pressure," he said.

The current spread between TTF day-ahead prices and summer 2017 is just over Eur3/MWh, according to Platts assessed prices on Wednesday, but has been as low as Eur1/MWh in recent months.

The bleak outlook has been somewhat tempered by a strong use of storage across Europe so far this winter.

Commercial Managing Director of Innogy Gas Storage Michael Kohl said Europe was on track for its gas storage levels to drop to record lows by the end of the winter having started the season at record highs.

"Very low prices in summer 2016 drove the filling," he said, adding that levels were now around 50%.

Asked whether there was a risk of European gas storage levels running dangerously low in the event of a continued cold winter, Kohl said it remained to be seen.

"It is too early to say if there will be an issue, and depends on the type of storage," he said, pointing to a more reliable withdrawal performance for salt-cavern storage facilities.

But OMV's Holzer said storages could go to their lowest ever by the end of the winter of under 11% full.

STRONG WITHDRAWALS

Holzer said that in the past few weeks there had been extremely high withdrawals to counter the prolonged cold snap across much of Eastern and Southern Europe.

The spread between the Austrian and Italian hubs has blown out in recent weeks making the withdrawal of gas in Austrian storages to supply Italy more lucrative.

"Customers of our storage are looking to make money now," Holzer said.

Uniper's Schmoltzer said some 100 Bcm of gas was stored in Europe ahead of the winter, an all-time high.

Competition between storage operators in Europe is also high, adding to the economic threat to individual companies.

Closures would, of course, benefit those left behind.

Some 3 Bcm of gas storage capacity in Europe has been closed over the past five years, but some 12 Bcm has been added, meaning a net 9 Bcm gain, Kohl said.

He added that increased pipeline capacity from Russia and Norway, as well as LNG supplies, were also a threat to gas storage economics in Europe.

However, he said, gas storage facilities were still better placed to respond to an immediate supply shortage as withdrawals could take place quickly.

LNG, on the other hand, would always be slower to respond as the vessels would have to be diverted to Europe, which takes time.

Attached Files

Alternative Energy

Trump or no Trump.. the greens are coming

Bad news petrol-heads; Trump or no Trump, the green revolution is coming to get you

2 FEBRUARY 2017 • 7:17PM64 CommentsSolar energy is likely to maintain momentum, regardless of Trump. Renewables have become as much a transformative tech shift as they are a regulatory response to global environmental challengesCREDIT: DAVID MCNEW/GETTY IMAGES/DAVID MCNEW/GETTY IMAGES

For Trump, the Paris agreement is the very embodiment of the “top down” multilateralism he and his ideological éminence grise, Steve Bannon, love to hate. What’s more, he thinks climate change is a “hoax”, or, as he once put it, a “very, very expensive form of tax”. Who knows; he may even be right. It wouldn’t be the first time the scientific orthodoxy has been entirely wrong.

Already, the climate change lobby is in ragged retreat before the Donald’s penchant for government by pen-flourishing executive order, and the fossil fuel brigade in a state of resurgent, high excitement. We seem to be at the start of a new age of “drill, baby, drill” licence for the rednecks of Big Oil. Supposedly consigned to the dustbin of history by clean energy concerns, hydrocarbons are all of a sudden being given a new lease of life.

Yet for those interested in the economics of energy, there is a much more significant question to answer than Trump’s designs on the Paris accord: whether climate change is a hoax or not, does it any longer matter? Put more succinctly, is it actually necessary to have binding national targets for carbon emissions in order to move to a low-carbon economy?

If not, then Paris will eventually be seen as of little importance, a well-intentioned, but largely pointless talk-fest of backslapping mutual governmental congratulation barely deserving of a footnote in the history books.

We may not be there quite yet, but we are close. Green technologies are reaching a tipping point of take-up, cost and efficiency which make their eventual wholesale adoption virtually inevitable, regardless of anything that might be done to reinvigorate fossil fuel industries in the meantime.

It is the economics which will in future drive the transition to a low emissions environment, not government intervention and carbon taxes. Never mind electric cars and LED light bulbs, peering into the future, we can already see a world of virtually cost free energy, of smart phones powered by radiant light alone, and of office blocks and houses that derive all their energy from the sun, the wind, and their own waste.

In terms of cost, longevity, and efficiency, all these technologies are showing almost exponential rates of improvement. Ironically, much of the cutting-edge research and development, from Elon Musk’s Tesla to thin-film solar cells and the latest in long-life battery storage, takes place in America.

On energy and technology, as on so much else, the Donald and his advisers are a mass of contradictions

Is the new administration seriously proposing to give up the country’s world leading position in clean energy for the essentially already obsolete technology of the internal combustion engine and the coal fired power plant? Of course not.

Mr Trump might be on to something politically in the sentimentality of his appeal to the coal miners of Pennsylvania and West Virginia, but in terms of the hard-headed economics, no amount of environmental deregulation can turn back the clock and save these industries.

As it happens, the decimation of American coal was not the work of subsidised renewables, but of the shale gas revolution, which Mr Trump thoroughly approves of. On energy and technology, as on so much else, the Donald and his advisers are a mass of contradictions.

The “bird killing” wind turbines of America, so much hated by the new President, already employ nearly twice as many people as coal, most of them in relatively deprived, rural areas. Take away the tax breaks, and it will certainly slow their progress, but it won’t halt it.

Coal isn’t yet entirely dead. It’s got some years left, particularly in the developing world. But its cost effectiveness is already under siege from the new technologies. Clean energy has developed an unstoppable momentum.

Even oil industry stalwarts are beginning to see the writing on the wall. Remember “peak oil”? This was the idea popularised by a geologist at Shell back in the 1970s that fossil fuel reserves were finite and would soon reach maximum production potential, after which they would go into precipitous decline. By now, we were meant to be running out, resulting in sky high oil prices, rationing and descent into international conflict for scarce resources.

It never happened, and now almost certainly never will. In a report last week, BP estimated that there is today twice as much technically recoverable oil available as the world will need between now and 2050, making it highly likely that some oil reserves will never be extracted at all.

This is quite an admission, for it implies that the oil industry has only got so much time left, and should be making hay while it still can. If demand is about to peak permanently, it makes sense to pump as much of the stuff now, regardless of the resulting glut and depressed price. The idea that underpins OPEC – that a barrel of oil is worth more left in the ground than extracted – is turned on its head.

So spare the righteous indignation when Trump pulls out of the Paris accord; beyond the symbolism, it’s not going to make a great deal of difference.

Analysis by Carbon Tracker and the Grantham Institute at Imperial College London published last week makes particularly grim reading for die-hard petrol-heads; the falling costs of electric vehicle and solar technology, it suggests, will halt growth in oil and coal far sooner than fossil fuel companies are willing to admit – so quickly, in fact, that it will render many of the targets for emission reductions agreed in Paris pretty much superfluous to requirements. They’ll be superseded of their own accord.

The writers may be guilty of a certain amount of wishful thinking. When it comes to energy, all assertions need to be treated sceptically, for invariably they are instructed by vested interest. But the direction of travel is clear. Historic experience of new technologies, moreover, is that the speed of adoption nearly always greatly exceeds expectations, driving a virtuous circle of cost reduction and consequent take-up.

So spare the righteous indignation when Trump pulls out of the Paris accord; beyond the symbolism, it’s not going to make a great deal of difference. The power of markets is much more likely to deliver results than the meaningless public relations of a self-congratulatory government target.

Saudi Arabia Will Invite Bids for Renewable Energy Projects in April

Saudi Arabia will invite international and domestic companies to bid for renewable energy projects in April , the energy minister said on Wednesday, adding that he expected to award the deals in September.

Energy minister Khalid al-Falih, speaking at a new s conference in Riyadh said the projects would include two new solar and wind power plants with a capacity to produce 700 megawatts of power.

The projects are part of a major renewable energy supply program which is expected to involve investments of between $30 billion and $50 billion by 2023.

" The terms on renewable contracts will be motivating," Al-Falih said at the press conference, according to Bloomberg, "so that the cost of generating power from these renewable sources will be the lowest in the world. " He added that they would also be the largest-sized such projects in the Middle East, and would be the country's first public-private partnership tender.

As the world's largest exporter of crude oil, Saudi Arabia has been trying to move away from its economic dependency on fossil fuels by investing in renewables and developing nuclear power, reports Bloomberg. Al-Falih said at the news conference that the country aims to generate up to 9.5 gigawatts of power from renewables by 2023.

Germany sets out details for first offshore wind auctions

German grid regulator BNetzA has set out the details for the first two rounds for offshore wind tenders with a combined volume of 3,100 MW for projects to enter operations between 2021 and 2025.

The regulator is now calling for bids in the first ever tender with a volume of 1,550 MW by April 1 with the maximum bid set at Eur120/MWh setting out various conditions concerning location, grid connection, back-up guarantees for the projects starting after 2020.

A second round with 1,550 MW tendered is scheduled to end on April 1, 2018 for projects starting until 2025, it said with guaranteed subsidies on offer for those projects potentially lasting to 2050 after the licensing period for project was increased from 20 years to 25 years, helping to reduce levelized costs and so auction bids.

According to the German offshore wind association, planned projects with over 7 GW of capacity are set to compete in the auctions with the latest list by the permitting maritime authority BSH including projects by DONG, E.ON, RWE Innogy, Vattenfall, EnBW, Iberdrola, Trianel, Northland, BEC Energie, Wind MW, PNE, Strabag, KNK Wind, Sea Wind and Windreich.

Last year, German offshore wind developers connected 0.8 GW new capacity to the grid bringing total offshore wind capacity to 4.1 GW with already approved or financed projects set to bring German offshore wind capacity above the government's reduced 2020 target of 6.5 GW by 2019.

According to the lobby group, the maximum achievable capacity based on grid connections to be provided by the TSOs under the national offshore grid plan is 7.7 GW by end-2020.

This would leave only 7.3 GW to be tendered under the new auction rules to achieve the current legal target of 15 GW by 2030 with further details or adjustments to be decided only after the elections in September, the lobby group said.

According to the offshore wind lobby, cost reductions for new offshore projects will also come to Germany after the latest tendering results in Denmark and the Netherlands have shown a remarkable drop in costs even if conditions in Germany are not exactly as in Denmark or the Netherlands.

In its statement, the regulator focused on the steady and cost-efficient growth path for offshore wind the government hopes to achieve through the move from politically set feed-in-tariffs to competetive auctions.

Offshore wind turbines in German waters generated some 13 TWh of electricity in 2016, up 57% on year with TSOs estimating around 20 TWh of offshore wind this year based on average wind conditions.

EU set to meet green energy goal; UK trails - document

The European Union is on track to meet its goal for renewables to supply up 20 percent of its energy by 2020, the EU executive said in a report seen by Reuters, although Britain, Ireland and Luxembourg are lagging behind.

In a stock take on the bloc's climate targets, due to be published on Wednesday, the European Commission saw renewables accounting for 16.4 percent of overall consumption in 2015.

However, it said EU nations will have to redouble efforts to meet steeper targets in coming years and were struggling to reduce emissions in the transport sector.

Fearing President Donald Trump will pull the United States out of a global pact to cut emissions, EU officials hope leadership in renewables will help forge ties with China to keep pushing diplomatic efforts to fight global warming.

"Despite the current geopolitical uncertainties ... Europe will move ahead with the clean energy transition, and will look to China and many others players to push forward," Climate and Energy Commissioner Miguel Arias Canete told Reuters.

Under the 2015 Paris climate deal, the bloc pledged to cut greenhouse gases by 40 percent compared to 1990 levels. It set a target to increase the share of renewables in energy consumption to at least 27 percent by 2030 - a goal environmental campaigners have criticised as lacking in ambition.

As the EU seeks to decrease dependence on Russian energy imports, it said higher use of renewables such as wind, biomass, hydro and solar have led to an estimated 16 billion euros ($17 billion) in savings in 2015 on fossil fuel imports.

As a share of renewables in Europe's power grid, onshore wind energy has grown fastest while solar photovoltaic development has been more uneven, the progress report said.

For green energy in transport, the 2020 target is 10 percent, while the expected level for 2015 was 6 percent, due to a late uptake of advanced biofuels.

The EU said France and the Netherlands may also need to ratchet up efforts to meet the 2020 goal.

Government support schemes for renewables vary widely across the bloc, creating regulatory uncertainty that has slowed growth, it said.

Late last year, EU regulators announced reforms to help adapt Europe's grid to the growth of variable wind and solar power by promoting greater cross-border cooperation.

Saudi Aramco Said to Weigh Up to $5 Billion of Renewable Deals

Saudi Aramco, the world’s largest oil company, is considering as much as $5 billion of investments in renewable energy firms as part of plans to diversify from crude production, according to people with knowledge of the matter.

Banks including HSBC Holdings Plc, JPMorgan Chase & Co. and Credit SuisseGroup AG have been invited to pitch for a role helping Aramco identify potential acquisition targets and advising on deals, the people said, asking not to be identified as the information is private. The energy company is seeking to bring foreign expertise in renewable energy into the kingdom, the people said, adding that first investments under the plan could occur this year.

Saudi Arabia is planning to produce 10 gigawatts of power from renewable energy sources including solar, wind and nuclear by 2023 and transform Aramco into a diversified energy company. The kingdom also plans to develop a renewable energy research and manufacturing industry as part of an economic transformation plan announced by Deputy Crown Prince Mohammed bin Salman in April.

The kingdom intends to become a global “powerhouse” of renewable energy including solar, wind and nuclear power, the country’s Energy Minister and chairman of Aramco, Khalid Al-Falih, said at the World Economic Forum in Davos, Switzerland. By 2030 the kingdom wants to produce 30 percent of its power from renewable energy sources.

Energy Program

OPEC’s biggest crude producer is embarking on a domestic renewable-energy program costing $30 billion to $50 billion. The country’s only solar plant in operation, aside from a limited pilot project, is a 10-megawatt facility on top of a parking lot at Saudi Aramco’s headquarters. The national utility, Saudi Electricity Co., is seeking bids for two solar plants to generate a combined 100 megawatts.

Saudi Arabia previously had longer-term targets for renewable power when crude prices were about double current levels. Its earlier solar program forecast more than $100 billion of investment in projects to produce 41 gigawatts of power by 2040. The government delayed the deadline for meeting that capacity goal by nearly a decade in January 2015, saying it needed more time to assess the relevant technologies.

Uranium

Tepco scraps uranium supply contract with Canada's Cameco

Canadian uranium producer Cameco Corp said on Wednesday that Tokyo Electric Power (Tepco) , the operator of Japan's wrecked Fukushima nuclear plant, had scrapped its uranium supply contract with the company.

Shares of Cameco slid 12.2 percent to C$14.55 in early trading on Wednesday.

The company, one of the world's largest uranium producers, said it considered Tepco's move to terminate the contract unfair and that it would pursue legal action.

Cameco said Tepco cited a force majeure for ending the contract as it had been unable to operate its nuclear plants for 18 straight months due to Japanese regulations arising from the 2011 Fukushima nuclear accident.

The company said it was notified of the contract termination by Tepco last week.

Tepco's termination of the contract would affect about 9.3 million pounds of uranium deliveries through 2028, worth about C$1.3 billion ($995.41 million) in revenue to Cameco, the Saskatoon, Canada-based company said.

Cameco's earnings before interest, taxes, depreciation and amortization could take a 10-15 percent hit in the near-term as a result of the Tepco dispute, said Edward Sterck, an analyst at BMO Capital Markets.

Tepco's move comes amid a fall in demand for uranium that is largely a result of the Fukushima nuclear plant meltdown, which led to shutdowns of all of Japan's nuclear reactors.

Some reactors have since come back online, but global inventories of the radioactive metal remain high.

Cameco warned late last year that the uranium market would remain depressed until Japan's nuclear reactors were restarted and excess supply was depleted.

Cameco also said it expected 2017 revenue of C$2.1 billion to C$2.2 billion, inclusive of Tepco's volume, adding that it could withstand any potential loss of revenue this year from the dispute.

Era posts A$271m loss

Uranium miner Energy Resources of Australia (Era) has made a A$271-million loss in 2016, owing to a A$231-million noncash impairment on the company’s property, plant and equipmentduring December.

The miner produced 17% more uranium oxide in the year, with output rising to 2 351 t, on the back of higher milling rates and improved recoveries delivered increased output.

However, sales volumes declined from the 2 183 t in 2015 to 2 139 t, while the average realised price for uranium oxide in 2016 was $41.87/lb, compared with the $51.99/lb in 2015. This negatively impacted on the group's revenue, which fell to A$266-million, from A$333-million in 2015.

Era told shareholders that the uranium market would likely remain challenging in the near term; however, the long-term outlook remained encouraging for established producers.

Era expected its uranium production in 2017 to be between 2 000 t and 2 400 t, with sales to be broadly in line with production.

Agriculture

EU set to approve ChemChina's $43 billion bid for Syngenta: sources

ChemChina is set to secure conditional EU antitrust approval for its $43 billion bid for Swiss pesticides and seeds group Syngenta, the largest foreign acquisition by a Chinese company, two people familiar with the matter said on Thursday.

The deal is important for China, the world's largest agricultural market, which is seeking to secure the food supply for its huge population. Syngenta's portfolio of top-tier chemicals and patent-protected seeds would boost its potential output.

The Chinese state-owned company has agreed to minor concessions to allay the European Commission's concerns over its takeover of the world's largest pesticides maker. Regulators had been worried that the deal may lead to higher prices and fewer choices for farmers.

ChemChina will divest a couple of national product registrations, including existing products and a few in the pipeline, in more than a dozen EU countries, one of the people said.

The products are generally from ChemChina unit and Israeli crop protection company Adama while a few are from Syngenta, the person said. No plants, facilities or personnel are involved. Adama is the largest supplier of generic crop protection products in Europe.

Commission spokesman Ricardo Cardoso declined to comment. It was not immediately possible to reach ChemChina for a comment outside regular office hours. Syngenta said it has not been notified of any decision by the Commission.

The Commission may announce its approval next month, ahead of its scheduled April 12 deadline, the source said.

Syngenta shares were 0.45 percent higher at 426.4 Swiss francs in late trade. The deal has already been approved by a U.S. national security panel.

New "green" fertilizer could contribute to food revolution - scientists

A new synthetic fertilizer could help farmers to save money, boost food production and reduce planet-warming emissions, scientists have found after trialing it on rice farms in Sri Lanka.

By slowing down the release of nutrients the fertilizer will help farmers to increase crop yields using less chemicals, the scientists from Britain and Sri Lanka said.

Chemical fertilisers such as the nitrogen-rich urea were key to the agricultural boom of the 1960s and 70s known as the "Green Revolution" but their cost remains relatively high for farmers in the developing world.

Agricultural production must rise by about 60 percent to feed a growing global population, expected to reach 9 billion by 2050, according to the United Nation's Food and Agriculture Organisation(FAO).

Urea, commonly used to grow rice, wheat and maize, dissolves quickly when in contact with water and part of its nutrients are washed away before crop roots can absorb them.

As a consequence, more applications are needed, which can prove too expensive for farmers in poor regions, the scientists wrote in the scientific journal ACS Nano this week.

Moreover, unabsorbed urea particles go on to form ammonia that pollutes waterways and eventually causes the release of greenhouse gases into the atmosphere.

The new fertilizer delays the dissolution of urea by binding it with a mineral to slow down the release of nutrients 12 times, the scientists said.

"The plant takes up more of the fertilizer and less is wasted," said Gehan Amaratunga of the University of Cambridge in Britain, co-author of the report.

"This goes a long way to reduce the environmental footprint of agriculture," he told the Thomson Reuters Foundation by telephone late on Thursday.

Initial trials using the new fertilizer on rice farms in Sri Lanka showed production grew up to 20 percent using almost half the amount of fertilizer, Amaratunga said.

Amaratunga said he hoped the innovation could help usher in a new, more eco-friendly Green Revolution.

"It is a Green Revolution...as it's more food and less environmental damage," he said.

Phosagro sees global fertiliser market re-balancing

The global fertilisers market is set to re balance as China reduces exports after flooding the market in the past few years, said the head of Phosagro, the Russian fertiliser giant.

"We expect China's inefficient plants to close. And because it will lead to certain shortages, their big enterprises will divert their deliveries towards the domestic market," Andrei Guryev told Reuters.

But Guryev said Chinese exports of phosphate and nitrogen fertilisers have already fallen by 30 percent since 2015 as some enterprises could not cope with low prices.

The decline, which is likely to continue this year, should allow prices for key fertiliser diammonium phosphate (DAP) to stabilise at last year's levels of around $340-$350 a tonne, Guryev said.

Phosagro is one of the world's largest producers of phosphate rock, an essential agricultural nutrient. It also sells compound fertiliser, a blend of processed phosphates, nitrogen, potash and often sulphur.

As one of the lowest-cost producers in the world the company plans to keep increasing output beyond 2017 by 5-10 percent a year.

This year it plans to finish the cycle of large investments, which will allow it to boost production to 8.5 million tonnes of all fertilisers by 2020 from just under 6 million a few years ago.

Guryev said he expected the rouble-dollar rate to stabilise and maybe even weaken to 63-64 roubles after a rally in the past few months to 59 roubles on the back of rising oil prices and hopes that the new U.S. administration of President Donald Trump will ease sanctions on Russia.

Guryev said Phosagro would also develop its own distribution and trading in Europe and Latin America to further boost direct sales to clients from the current rate of 70 percent.

Even though Phosagro is predominantly an exporter, he said the Russian market was also looking attractive due to increased crop production which has made the country the world's largest wheat exporter.

"In Russia, we are seeing a real boom. We have increased fertiliser deliveries by 30 percent over the past year and even with the current low wheat prices the Russian market looks quite appealing," he said.

Precious Metals

Gold producer Centamin on Wednesday reported a 357% increase in its pre-tax profit to $266.8-million for the year ended December 31.

This translated into earnings a share increasing from $0.04 in 2015, to $0.23 in the period under review.

Centamin chairperson Josef El-Raghy said the company’s flagship Sukari gold mine, in Egypt, had continued to deliver substantial free cash flows in 2016, driven by a seventh successive year of production growth and lower operating costs.

“This performance has allowed us to maintain [a] strategic focus on generating shareholder returns and value-accretive growth. A significant milestone was achieved during the year, as the capital investment in the Sukari operation by Centamin's wholly-owned subsidiary Pharaoh Gold Mines (PGM) was recovered from cash flows to the extent that profit share started with the Egyptian government during the third quarter,” he added.

Centamin ended the year with $428-million in cash, bullion on hand, gold sales receivables and available-for-sale financial assets, an increase of $197-million from the prior year.

The company would continue to invest in its long-term growth. “Beyond Sukari, we remain focused on our extensive licence holdings in West Africa,” El-Raghy said.

This includes focusing on building further prospective licence holdings in Côte d'Ivoire, with the new discovery at the Doropo project in the northeast of the country, where drillingto date has led to a maiden resource estimate of 300 000 oz indicated and one-million ounces inferred.

Further, work this year will be aimed at upgrading and expanding on this positive start towards projectdevelopment. “In Burkina Faso, we continue to evaluate data from the extensive drilling programmes carried out to date and further work is being planned for the year ahead,” said El-Raghy.

The company concluded the 2016 year on a strong note, having produced 551 036 oz of gold.

This was paired with a lower production cost of $513/oz, down from $713/oz in the previous year. This was also below its revised guidance range, driven by higher production and reductions in mine production costs, mainly owing to lower fuel prices.

Centamin declared a final dividend of $0.13 a share, representing a full year pay-out of $178-million, equivalent to about 70% of its net free cash flow in 2016.

The company is targeting production of 540 000 oz this year, at an all-in sustaining cost of $790/oz.

Zimplats says Zimbabwe in fresh bid to seize its mining claims

Zimplats said on Tuesday the Zimbabwean government had issued a new notice earlier this month to forcibly acquire more than half of its mining ground and had given the company 30 days to lodge an objection.

This is the third time since February 2012 that President Robert Mugabe's administration has issued a notice to seize 27,948 hectares of mining ground from the country's largest platinum producer, which objects to the acquisition.

Zimplats, which is 87 percent owned by Impala Platinum Holdings, said in its September-December results that Harare had issued the new notice on Jan. 13.

Attached Files

Harmony shares rise on expectation of up to 255% increase in H1 HEPS

Harmony Gold’s share price rose by 9.6% on the JSE on Monday afternoon after it announced an expected increase of between 235% and 255% year-on-year in its headline earnings per share (HEPS) for the six months ended December 31.

Harmony attributed the higher HEPS to an increase in the average gold spot price, the recognition of a gain on the Hidden Valley acquisition and the gains recognised on goldand currency hedges.

This, the company noted on Monday, will translate to HEPS of between 139c and 160c.

Meanwhile, its earnings a share are expected to be between 434% and 454% higher year-on-year at between 341c and 361c. Harmony recorded a loss a share of 102c in the half-year ended December 31, 2015.

“We achieved all we set out to in the half-year. We improved our safety performance and increased production. Safe mines are profitable mines and profitable mines strengthen our margins,” said CEO Peter Steenkamp.

The company will publish its results on February 2.

Harmony’s shares rose as high as R35.01 a share on Monday, compared with Friday’s close of R31.94.

The World Bank this week joined the chorus of gold bears forecasting a drop in the gold price to an average $1,150 an ounce in 2017 in its January Commodities Outlook. That compares to an average gold price of $1,247 an ounce last year, compared to 2015's average of $1,160, but nowhere near 2012's $1,689:

Gold prices are expected to decline 8 percent on weak investment demand, while silver prices are expected to fall 4 percent. Platinum prices are projected to rise marginally on likely tightness in supply. Downside risks to the forecast are stronger economic growth and faster than expected increases in U.S. interest rates.

In contrast, industrial metals producers can look forward to a bullish 2017 with prices projected to increase by 11% in 2017 "due to tightening markets for most metals, especially those facing imminent resource constraints":

The largest gains are expected in zinc (27 percent) and lead (18 percent) due to mine supply constraints brought on by permanent and discretionary closures. Double-digit gains are also expected for copper, nickel, and tin.

Upside risks to prices include stronger global demand, slower ramp-up of new capacity, tighter environmental constraints, and policy action that limits supply. Downside risks include slower demand in China and higher-than-expected production, including the restarting of idled capacity.

Gold price: Physical demand from India, China craters

Gold price: Physical demand from India, China craters

Gold ended 2016 with a gain of 8.6% after touching six-year lows at the end of 2015. But bears had the better of it in the second half of the year – the metal declined by more than 16% after hitting an intra-day high of $1,377 on July 6. 2016 was the first annual gain since 2012. For the year the average gold price came in at $1,247 an ounce, compared to 2015's average of $1,160, but nowhere near 2012's $1,689.

Mine supply continued to ebb lower, rounding off the first calendar year of drops since 2008

That the yellow metal advanced at all in 2016 is even more surprising considering a new report by industry trackers GFMS Thomson Reuters showing physical gold demand declined to a seven-year low last year. During the fourth quarter the global surplus of just less than 300 tonnes of metal was the greatest oversupply since late 2005.

That this large a surplus was recorded despite net purchases of physically-backed gold exchange traded funds reaching near record highs over the course of the year is another indication of just how significant the slump in physical demand turned out to be.

A collapse in demand from India, the backbone of the global physical trade for decades, was behind the weakness, but Chinese appetite for gold also waned significantly in 2016. According to the authors of the report the reasons behind the decline are "in a nutshell, India, China and the US dollar":

Global jewellery fabrication in 2016 was at the lowest since 1988 in volume terms

Of all the dramatic twists and turns in 2016, Prime Minister Modi’s announcement that he was set to demonetise large Indian banknotes, which were equivalent to approximately 86% of the currency, was surely the most unexpected of all. While in the long term this may have some positive implications for Indian gold demand in the short term it was yet another hurdle which crimped Indian jewellery fabrication and ensured India lost its crown to China as the largest gold consumer overall in 2016. Indeed Indian jewellery fabrication was at a 20-year low in 2016.

Meanwhile, even though China became the largest gold consumer again, this was not in anyway a reflection of strong demand there. In fact, jewellery demand in China was down 14.8% year-on-year in the final quarter of 2016 with the K-gold and gem-set gaining market share. Indeed global jewellery fabrication in 2016 was at the lowest since 1988 in volume terms.

Given all this, the surplus would have been even larger if it were not for a seasonal boost to jewellery demand and somewhat of a rebound in buying from the of official sector as Russia bought strongly on lower prices. Furthermore, mine supply continued to ebb lower, rounding off the first calendar year of drops since 2008, although this supply fall was almost exactly offset by an increase in hedging.

Attached Files

Base Metals

Asia alumina: Australia slips 50 cents/mt on global stockbuild

The Platts Australian alumina daily assessment slipped 50 cents/mt on Thursday to $336.50/mt FOB, as the market evolved from a tight or snug position, to being better supplied.

In the last couple of days, a number of producer, consumer and trader sources have said the market appeared to be under downward pressure as more tonnage have become available.

On Thursday, a supplier said he was expecting higher production rates in China to drag on the global alumina market. He thought the next March trade was likely to settle below $337/mt FOB Western Australia.

In recent days, buyers guidance has been mentioned a number of times at $335/mt FOB Australia.

There are tons to be had from Australia, India, Vietnam and possibly, Indonesia and Brazil.

Additionally Chinese market participants have made overtures of being open to reselling imported tons, sources said in the last week.

China's financial markets are set to reopen on Friday after a week-long holiday for the Lunar New Year.

Another year, another lead squeeze, but is this one different?

Last year zinc was the star performer among the major base metals traded on the London Metal Exchange (LME).

Might it be sister metal lead's turn to shine this year?

The unglamorous heavy metal has already had a tumultuous start to 2017.

LME three-month metal, currently trading around $2,340 per tonne, has notched up a year-to-date gain of over 16 percent, beating zinc into second place.

Funds have been quietly lifting their exposure. As of the close of last week the money manager net long position was equal to 18.5 percent of open interest, a record level since the LME started publishing such data in July 2014.

A ferocious squeeze on the London market has helped. The LME's benchmark cash-to-three-months spread CMPB0-3 traded out to $45.50-per tonne backwardation at one stage last month, a degree of tightness not seen since 2011.

In the mix has been a dominant long position holder and a sharp rise in cancellations of LME lead stocks. The amount of metal earmarked for physical load-out from the LME warehouse system currently stands at 67,225 tonnes, representing almost 36 percent of total exchange stocks.

Seasoned watchers of the London lead market might be forgiven for rolling their eyes at this point.

We've been here before. There were similar squeezes on LME stocks in both March and December 2015 and neither of them had anything to do with real-world demand. Rather, they resulted from "warehouse wars" as storage operators competed for stocks and rental revenues.

But this time might just be different because there is a growing sense that this opaque market might really be tightening up to the point that metal is now being hoarded in expectation of a physical squeeze later this year.

Graphic on LME lead stocks; open and cancelled tonnage and ratio of cancelled tonnage since Jan 2015:

HERE WE GO AGAIN?

Last month's sharp contraction in time-spreads bore all the hallmarks of one of those periodic tussles for LME-stored lead that has enlivened an otherwise dull market in recent years.

Some 15,000 tonnes of metal that were earmarked for physical load-out in the Dutch port of Vlissingen were placed back onto LME warrant.

Within days another 43,000 tonnes of LME stocks had been cancelled, primarily at the South Korean port of Busan but also across a range of European locations.

At the heart of all this stocks mayhem has been the unidentified entity gripping the nearby spreads. At times it has controlled positions equivalent to between 80-90 percent of available LME tonnage. The latest exchange report <0#LME-WHC> shows it still there with 50-80 percent of stocks.

Superficially, this might look like the latest round in the tit-for-tat smash-and-grab "warehouse wars" that caused similar spread and stocks disruption in both 2015 and early 2016.

LME metal would be cancelled and disappear from one location only to reappear in another, only for the original victim to turn aggressor and start the cycle again.

The long-term impact on LME stocks has been negligible. They started this year at 191,650 tonnes, little changed from 221,975 tonnes at the start of 2015.

But the word in the tight-knit lead trading community is that this time is different with traders rather than storage operators taking strategic physical positions in expectation of a looming squeeze on availability in the real world rather than paper market.

SISTER METALS, TWIN DYNAMICS

The squeeze has already started upstream at the mine concentrates stage of the supply chain.

Treatment charges (TCs), which is what smelters charge miners for transforming raw material into metal, are the best indicator of what is happening in the concentrates part of the supply chain.

And, according to research house Wood Mackenzie, spot TCs into China are currently below $20 per tonne, down from $80 just three months ago and the lowest level since at least the turn of the decade.

In this respect lead is playing catch-up with zinc. The two metals are commonly found in the same deposits with lead the "ugly sister" by-product to zinc.

The closure due to exhaustion of mines such as Century in Australia and Lisheen in Ireland may have grabbed the zinc headlines but both were also producers of lead.

And while the zinc market is on tenterhooks as to when Glencore might reactivate the 500,000 tonnes of zinc mine capacity it shuttered at the end of 2015, it's easily forgotten that the same company has 100,000 tonnes of lead capacity in mothballs.

Global mine production of lead fell by 3.3 percent in 2015 and by a sharper 7.5 percent over the first 11 months of 2016, according to the International Lead and Zinc Study Group.

A SPECTACULAR YEAR?

As with zinc, the consensus is that it's only a matter of time before the squeeze on raw materials translates into a squeeze on refined metal. Indeed, it might be happening faster in lead.

"The supply deficit is the big story for 2017," according to Farid Ahmed, principal lead analyst at Wood Mackenzie.

The company estimates last year's refined lead shortfall of 38,000 tonnes will become a more acute 86,000-tonne deficit this year.

As ever with lead, there is considerable uncertainty as to what is happening in the scrap part of the supply chain, which accounts for a much higher ratio of supply than for other industrial metals.

But, according to Ahmed, "the secondary sector is limited in its ability to respond to the primary shortfall," dependent as it is on the recycling of scrap batteries.

Batteries fail during extremes of hot and cold weather rather than responding to any price or economic cycle.

And with lead only accounting for around 14 percent of revenue for miners, new mine supply is going to depend on what happens to the price of zinc rather than its "ugly sister".

Wood Mackenzie is forecasting the lead price to rise steadily through 2017 and to exceed $2,500 per tonne next winter during the "battery kill" peak demand season.

"Stock movements point to major players positioning themselves ready for a major squeeze on metal availability," according to Ahmed.

His conclusion is that "this year promises to be spectacular for lead".

Elliott on Tuesday nominated five directors to Arconic's board, taking aim at Kleinfeld's leadership, company strategy and its performance compared to peers.

"The board, as well as management, have had intense dialogue with Elliott and spent countless hours to go through those assertions," Kleinfeld told network CNBC in an interview on Tuesday. "The board stands behind the strategy and they stand behind me.".

On Tuesday, Arconic announced the board unanimously backed the CEO, a sign the company was digging in its heels against Elliott, making it more likely the fight over Kleinfeld and the company's path could go to a shareholder vote this spring. Arconic spun off from aluminum producer Alcoa last November in a move orchestrated by Kleinfeld.

With any proxy fight, the two sides can reach an agreement all the way up to the final hour of the vote. Arconic's annual meeting is usually in May.

Arconic's stock soared to $25 on Wednesday, as investors bet that Elliott's pressure will drive the stock even higher.

Prior to Elliott's nominations, Arconic's shares had risen from $17 late last year to around $22.

After the split, Alcoa retained the company's legacy aluminum, alumina and bauxite smelting business, while Arconic focused on higher-end aluminum and titanium alloys used in planes and cars.

"Each Arconic business will massively miss the performance targets that management set for 2016," Elliott said in its presentation, sent to shareholders on Wednesday.

Kleinfeld on Wednesday told CNBC that margins were improving and the business has come a long way since the commodity market plunge in 2009 nearly sank Alcoa.

Elliott has said Larry Lawson, formerly CEO of Spirit AeroSystems Holdings Inc should be the CEO of Arconic.

Elliott first invested in Alcoa in 2015, and struck a deal with the company prior to its Arconic spin-off, which avoided a proxy fight and allowed three Elliott-supported directors to serve on the boards of both companies.

Six of 12 independent directors on Arconic's board joined within the last year, which includes Elliott's three nominees and three appointed after the separation last November.

Philippines to shut mines, suspend others as clampdown deepens

The Philippines will close down over 20 mines, mostly nickel producers that account for about half of output in the world's biggest nickel ore supplier, as a government campaign to fight environmental degradation deepens.

Manila is also suspending operations at six other mines, including the country's top gold miner.

Environment and Natural Resources Secretary Regina Lopez ordered the closure of 21 mines and the suspension of several others, including a gold mine operated by Australia's Oceanagold Corp, for causing environmental destruction. Shares of Oceanagold fell more than 14 percent.

"Why is mining more important than people's lives?" Lopez told a media briefing.

Lopez, a staunch environmentalist, said several of the mining operations that were shut were in functional watersheds.

"My issue here is not about mining, my issue here is social justice," she said, after showing footage of environmental damage caused by mining in the Southeast Asian nation.

Lopez said the nickel mines ordered to shut account for about 50 percent of the country's annual output. These mines, along with others, can appeal their case to President Rodrigo Duterte.

Duterte has backed Lopez's mining audit, warning shortly after taking office last June that the Philippines could survive without a mining industry.

Some of the mines that have been ordered to close had their production suspended last year by the government, leading to a spike in nickel prices.

Three-month nickel on the London Metal Exchange fell 0.4 percent to $10,210 a tonne by 0533 GMT, with a holiday in China dampening trading.

Oceanagold, in a statement, said it has not received any official suspension order from Manila's Department of Environment and Natural Resources.

"There is no legal basis for any proposed suspension," the miner said.

Attached Files

Sherritt forecasts higher 2017 nickel output

Canada-based Sherritt International Resources is forecasting higher nickel production in 2017, especially from its 40%-owned Ambatovy nickel and cobalt joint venture (JV), in Madagascar.

The diversified miner on Tuesday provided a nickel production guidance (100% basis) of 81 000 t to 86 000 t for 2017, which compares with 2016’s output of 75 033 t.

Cobalt production is forecast to increase from 6 967 t in 2016 to between 7 300 t and 7 900 t in 2017.

Sherritt said the Ambatovy JV had delivered a “strong” performance in the fourth quarter, producing 12 778 t of finished nickel, contributing to the operation’s yearly production of 42 105 t.

The mine’s production guidance for 2016 was lowered twice last year, owing to some glitches in the April-to-June period, which was followed by a maintenance shutdown in June and July. Originally, the JV partners, which also include Japanese trading house Sumitomo (32.5%) and Korea Resources(27.5%), expected Ambatovy to produce 48 000 t to 50 000 t in 2016. In August, the guidance was lowered to between 42 000 t and 45 000 t.

The Ambatovy mine produced 3 273 t of cobalt in 2016, which is expected to increase to between 3 800 t and 4 100 t in 2017.

At the 50%-owned Moa JV, in Cuba, Sherrit reported nickel production of 32 928 t and cobalt production of 3 694 t in 2016. This was in line with the company’s guidance for the year.

For the first time, Sherritt also provided a 2017 outlook for unit operating costs. The company provided a guidance of $3.14/lb to $3.70/lb for net direct cash costs. The Moa’s JV’s costs are expected to be similar to 2016 levels and the Ambatovy JV’s costs are expected to be lower, owing to higher production rates at the operation.

The miner will provide its 2016 unit operating costs and capital spending in the fourth quarter and year end 2016 report, which it plans to publish on February 16 after the markets close.

Activist investor Elliott Management Corp on Tuesday launched a proxy fight against Arconic Inc (ARNC.N), which makes engineered metal parts for the aerospace, automotive and other industries, campaigning for the ouster of the company's chief executive and saying it had a plan to boost the company's performance.

The news came after Arconic reported a quarterly net loss following the market close, caused by charges related to the company's separation from Alcoa Corp (AA.N) last November and said cost-cutting would help it boost margins in 2017.

Elliott, which manages funds that own 10.5 percent of common stock and equivalents of Arconic, has nominated five independent candidates to the board.

In a presentation Elliott said it could improve Arconic's valuation to at least between $33 and $54 per share. The stock closed at $22.79 on Tuesday.

"We believe a change in CEO is needed for the Company to sustainably create maximum shareholder value," the presentation says.

Elliott said it had engaged Larry Lawson, formerly CEO of Spirit AeroSystems Holdings Inc (SPR.N), as a consultant and that it believes he should be a leading candidate for CEO of Arconic.

New York-based Arconic said tax valuation allowance charges related to the split with Alcoa, plus restructuring and other costs were behind its fourth-quarter loss.

Alcoa retained the company's legacy aluminum, alumina and bauxite smelting business, while Arconic focused on higher-end aluminum and titanium alloys used in planes and cars.

"In 2017 we are squarely focused on operational improvements, margin expansion, and capital efficiency to drive shareholder returns," CEO Klaus Kleinfeld said in a statement. "We will continue to cut cost through productivity and corporate overhead reduction."

The company said on Monday that Kleinfeld had the unanimous support of its board of directors despite reports some shareholders wanted to oust him.

When asked about those efforts, Kleinfeld said that Alcoa shareholders have seen returns of 21 percent since the split in November and Arconic shares have gained roughly 19 percent.

"It's clearly been very successful in unleashing value," he said.

Arconic said it expects revenue in the first quarter to range from $2.8 billion to $3 billion, and full-year 2017 revenue to be between $11.8 billion and $12.4 billion.

This would be flat to down versus revenue of $12.4 billion in 2016 and 2015.

Analysts have predicted full-year revenue for Arconic of $12.1 billion.

The company reported a fourth-quarter net loss of $1.2 billion, or $2.88 per share. Adjusted for one-time items, the company reported net income for the quarter of $71 million or 12 cents per share. Analysts had expected earnings per share on an adjusted basis of 13 cents.

Philippine minister says some mines need to be shut on eve of green audit results

Some Philippine mines need to be shut given the environmental harm they have caused, the minister in charge of sector said on Wednesday, a day before the government announces the results of a months-long review of the country's mineral producers.

"We'll be really, really strict," Environment and Natural Resources Secretary Regina Lopez told radio station DZMM. "There's some really that have to be closed," Lopez said, without identifying which mines she meant in the review to be published on Thursday.

"That's what I see, because it's too much, it's extreme" Lopez said on the destruction some mines have caused.

The Southeast Asian nation, the world's biggest nickel ore supplier, last year suspended operations at a group of 10 of its 41 mines - including gold and copper mines as well as nickel ore producers - for environmental infractions after launching an audit of the sector in July. Manila said in September that 20 more mines were at risk of suspension.

The country's firebrand leader Rodrigo Duterte has backed Lopez's mining audit, warning shortly after taking office last June that the Philippines could survive without a mining industry.

"The decisions that we're making are not political," the minister said. "I'm not looking at who owns the mines. What's important is the welfare of those people who live there."

Some 22 of the 30 mines under review are nickel ore producers, and the threat to disruption of supply from the Philippines has helped fuel a 14 percent rally in global nickel prices since last year.

Attached Files

Russia's Nornickel sees nickel, palladium output up in 2017

Norilsk Nickel (Nornickel) , one of the world's largest nickel and palladium producers, plans to increase output of its main metals from Russian raw material this year, the company said in a statement on Tuesday.

Nornickel, which competes with Brazil's Vale SA for the rank of the world's top nickel producer, experienced falls in production of nickel, copper and platinum group metals in 2016.

The lower output was mainly due to scheduled decommissioning of an old nickel plant and ongoing reconfiguration of downstream production facilities in northern Siberia.

This year Nornickel, part-owned by Russian tycoon Vladimir Potanin and aluminium giant Rusal, plans to produce from Russian feedstock 206,000-211,000 tonnes of nickel, 377,000-387,000 tonnes of copper, 2.6-2.7 million ounces of palladium and 581,000-645,000 ounces of platinum.

In 2016, its consolidated nickel production was 235,749 tonnes, down 12 percent year-on-year. Nickel output from its own Russian feed was 196,664 tonnes.

Its 2016 consolidated copper production was 360,217 tonnes, 2 percent less than in the previous year, of which 344,482 tonnes was produced from its Russian feed.

Its 2016 palladium and platinum output was 2.6 million ounces, down 3 percent, and 644,000 ounces, down 2 percent, respectively. Palladium and platinum output from Russian feed totalled 2.5 million ounces and 608,000 ounces, respectively.

Freeport may resume copper exports from Indonesia in ‘a day or two’ — authorities

Freeport McMoRan Inc, the world's largest listed copper miner, were down on Monday despite reports indicating that Indonesia may issue a temporary permit valid for up to six months to the company's local unit, which could pave the way for the mining giant to resume exports of concentrate from its Grasberg mine in Papua.

The temporary permit, valid for up to six months, would pave the way for Freeport to resume exports of copper concentrate from its Grasberg mine in Papua.

The temporary authorization could be issued "in one or two days", Energy and Mineral Resources Minister Ignasius Jonan said according to Reuters. Such permit is being considered to avoid a stoppage to Freeport's exports while it completes the requirements for a new special mining licence, he noted.

Indonesia’s fresh ban on concentrate exports kicked in on January 12 as part of the South East Asian nation's comprehensive change to mining regulations and ownership rules.

Some of the freshly introduced legislation require Freeport to obtain new mining rights before being allowed to resume exports.

The Grasberg mining complex in the remote Papua region of Indonesia is responsible for more than a quarter of Freeport's total output. Before the current troubles, it was set contribute an even greater proportion in 2017 as copper grades improve and gold production is boosted.

But in light of the export ban the company has said it may have to suspend planned spending of around $1 billion per year through 2021 to transition the mine to underground operations.

Last year, the iconic mine produced more than 500,000 tonnes of copper and over 1 million ounces of gold.

Nickel price picked as 2017 winner

New report forecasts 20% improvement in nickel price by end-2017 – copper, lead and zinc to retreat

Nickel fell to a 13-year low of $7,725 a tonne ($3.50 a pound ) in February last year; then rallied to more than $11,700 by mid-November only to fall back nearly 20% to trade at a six-month low on Friday.

Nickel, mainly used as an anti-corrosive in steel alloys, rallied in 2016 on the back of a clampdown on mines in the Philippines which took over as the main supplier to China following an ore export ban in Indonesia in place since 2014.

The market was rocked earlier this month when Indonesia abruptly announced a partial lifting of the ban allowing exports of up to 5.2 million tonnes of nickel ore this year.

In a new report Capital Economics, a London-based independent research house, believes of all industrial metals, the nickel price has the best prospects to improve adding that "the market is tightening [following years of underinvestment in new mines] and it is still too soon to say what the partial lifting of Indonesia’s ban on ore exports will mean for supply."

In addition supply from the Philippines may remain constrained. Final results of an audit of the mining sector in the Asian nation ordered by President Duterte is expected this week.

Some 11 mines have already been shut down for failing to comply to stricter environmental rules and a further 20 are under threat. Capital Economics says ultimately 50% of the country's mining capacity could be closed:

However, there are other sources of supply, notably from New Caledonia, that are chomping at the bit to take market share. In late December, the New Caledonia government approved requests from nickel miners to export over 2 million additional tonnes of ore to China. (The government restricts ore exports in a bid to encourage domestic processing.)

On the demand side Capital Economics estimated growth in 2016 at a robust 6.2%, but the firm warns that China’s stainless steel production have have ran ahead of demand last year. Demand for nickel could get a bump from fiscal stimulus in the US, but given the relatively small global share of US nickel consumption, the impact may be limited.

Notwithstanding the likelihood of slower growth in demand, Capital Economics continues to expect that the market will record another deficit in 2017 putting a floor under prices in 2017.

Capital Economics sees the price of nickel climbing to $11,500 per tonne by the end of the year (that's a 20% jump from today's price), with further upside predicted in 2018. That makes nickel the metal Capital Economics is by far the most bullish about.

Hedge funds have never been this bullish about copper price

Hedge funds have never been this bullish about copper price

On Monday copper for delivery in March declined more than 1% in New York at $2.6545 per pound or $5,855 a tonne amid a general weakness on commodity and financial markets gripped by uncertainty surrounding the Trump administration's impact on the global economy and geopolitical stability. Last week copper touched its highest level since June 2015 above $2.70 a pound.

Despite the pullback copper is still up 37% from near-six year lows struck this time last year, with most of those gains coming in the last four months. Better prospects for the bellwether metal is nowhere more evident than on derivatives markets and the shift in positioning of large-scale derivatives speculators such as hedge funds.

While continuing to reduce bullish gold bets, on the copper market hedge funds have pushed long positions – bets on higher prices in future – to new heights. According to the CFTC's weekly Commitment of Traders data up to January 24 so-called managed money investors have taken net longs to a fresh recored high of just over 91,000 lots.

That's the equivalent of nearly 2.3 billion pounds or more than 1 million tonnes worth around $6 billion at today's prices. It shatters the previous peaks achieved mid-2014 when the copper price was above $3.20 a pound and represents the equivalent of $9 billion swing from 2016 second quarter net short position (bets that copper can be bought back cheaper in future) of 1.2 billion tonnes.

Copper's recent strength has been spurred by worries over supply disruption from Indonesia where top listed copper producer Freeport's Grasberg mine facies an export ban and in the globe's main producing region in Chile. Platts reports on Monday rough seas have closed ports in northern Chile which services some of the biggest copper mines in the country for the fourth day:

The affected ports include Patache, which handles exports of copper concentrates from the giant Collahuasi mine, and Iquique, through which Collahuasi, Teck's Quebrada Blanca and BHP Billiton's Cerro Colorado mines export copper cathode.

The weather has also forced the closure of Mejillones, which handles copper cathodes from many copper mines in the region, including state-owned Codelco and Freeport McMoRan's El Abra.

The Port of Antofagasta used by BHP Billiton's Escondida mine, the world's largest copper operation, remains open

The Port of Antofagasta used by BHP Billiton's Escondida mine, the world's largest copper operation, remains open according to the report. The copper price has also been boosted by a possible production outage at Escondida.

The current collective agreement with the main union at the mine expires at the end of January and according to a Reuters report workers have rejected BHP's latest revised offer and union leaders have told members "to vote for a strike and prepare for an extended conflict."

The previous labour deal was signed four years ago when copper was trading around $3.40 a pound. BHP expects full-year production at Escondida of 1.07 million tonnes, which gives the mine a nearly 5% shares of global mine production. Given Escondida's size a prolonged outage could have a meaningful impact on the price.

BHP's copper production for the half year to end December fell 7% to 712,000 tonnes due to a power outage at its Australian Olympic Dam operations in September-October. BHP also cut full year guidance by 40,000 tonnes to 1.62m tonnes.

Chile produces 28% of the world's copper and the country's output dropped by 3.9% in 2016, mainly due to lower production at Escondida and Anglo American Sur.

Production in the South American nation is expected to grow by 4.3% according to the Chilean government forecaster adding that Escondida would account for almost all of the expected increased output.

Iluka says expects 2016 loss after impairments

Miner Iluka Resources said on Tuesday it expects top show a net loss of A$220-A230 million ($166 -$173 million) for 2016 as it refocuses on operations in Sierra Leone and writes off non-operating assets, mainly in Australia.

Iluka said the decision to book A$201 million in non-cash impairments follows a review of assets in Australia, the United States and Sierra Leone, where it recently completed an A$375 million acquisition of Sierra Rutile. Iluka showed a net profit of A$53.5 million in 2015.

The world's largest producer of zircon, and the second-largest producer of titanium dioxide feedstock rutile and synthetic rutile, said the writedown related mainly to its idled operations in Australia's Murray Basin.

"Our review has been aimed at generating shareholder value and, with the completion of the Sierra Rutile acquisition, Iluka has added a large, long life asset with strong growth potential," Managing Director Tom O'Leary said in a statement.

"It's against that backdrop that we've reviewed the likelihood of developing some of Iluka's mineral deposits in Australia and the United States," O'Leary said.

Oz Minerals lifts copper production forecast

Copper/goldminer Oz Minerals has flagged a 30 000 t increase in copper production over the next two years, but gold production is will be lower than previously thought.

The miner on Monday maintained its copper output guidance for 2017 at between 105 000 t and 115 000 t, but increased its guidance for 2018 and 2019 to between 90 000 t and 100 000 t each.

This is up from the previous guidance of 85 000 t to 95 000 t for 2018, and 65 000 t to 75 000 t for 2019.

Meanwhile, gold production expectations have declined from the previous estimate of between 125 000 oz and 135 000 oz of gold during 2017, to between 115 000 oz and 125 000 oz.

For the longer term, gold production expectations have declined from the previous 140 000 oz to 150 000 oz targeted in 2018 and 150 000 oz and 160 000 oz in 2019, to between 120 000 oz and 130 000 oz for both years.

Meanwhile, Oz Minerals on Monday reported that copperproduction for the December quarter had increased slightly to 29 758 t, from 28 756 t in the previous quarter. Goldproduction increased to 32 205 oz, from 28 466 oz in the September quarter.

“The actions we’ve taken in the last 12 months in executing our strategy have positioned us strongly for the year ahead and beyond,” said CEO Andrew Cole.

“Prominent Hill demonstrated its operating discipline delivering on copper guidance in the face of a major state-wide power outage, which resulted in 15 days of lost production during the second half of 2016.”

In addition to meeting production targets, Oz Minerals also extended the mine life of Prominent Hill following a 40% increase in the project’s underground reserve. The project’s life has now been extended to 2028.

Asia alumina: Australia dips 50 cents/mt on lack of buyers

The Platts Australian alumina daily assessment slipped 50 cents/mt day on day to $339/mt FOB Friday, softened by a lack of buyers on the eve of the Lunar New Year.

A notable number of market participants have said in recent days that they thought there was much uncertainty in China's market outlook post-lunar holiday. The US' complaints about China's aluminium industry and Beijing's tougher stance on environmental standards may have sweeping implications for the Chinese alumina and aluminium markets, sources said.

From the sidelines, a producer said he was anticipating March shipment bids to fall slightly below $339/mt FOB Australia after the LNY holiday, possibly to $337-$338/mt.

A second source reported placing a bid at $335/mt FOB Visakhapatnam, India on January 24, for Nalco's sell tender for a 30,000 mt shipment between February 16 and 20.

From the sidelines, a trader put its buy interest at $335/mt FOB Australia, describing the rate as "conservative" for a buyer.

S&P Global Platts assessed the Handysize freight rate at $14.25/mt on Friday for a 30,000 mt shipment in late February from Western Australia to Lianyungang.

China's financial markets will close January 27 through to February 2 for the LNY.

Peru to auction rights to Michiquillay copper project this year

Peru plans to award the rights to develop the Michiquillay copper deposit in a public tender this year, one of 16 public-private projects worth $4-billion that it intends to auction in 2017, the head of the state bidding agency said on Thursday.

In 2018, some fifteen projects that would cost up to $10.35-billion will be tendered, including a new commuter train line in the city of Lima, said Alvaro Quijandria, the new chief of Proinversion.

London-based miner Anglo American Plc returned its contract for operating Michiquillay to Peru in late 2014 due to capital constraints. The company had estimated that it would produce some 200 000 t of copper per year.

Peruvian polymetallic miner Milpo said in 2015 that it would like to develop Michiquillay. Proinversion said several companies have expressed interest in the project.

Freeport-McMoRan paid Congo's Gecamines $33m to settle Tenke dispute

Freeport-McMoRan paid $33-million to resolve claims brought against it by Congo state miner Gecaminesover the sale of its majority stake in the Tenkecopper mine to China Molybdenum (CMOC), it said in a statement.

The settlement, revealed in the company's fourth quarter 2016 earnings statement, ends actions including a complaint before the International Chamber of Commerce, Freeport-McMoRan said. CMOC purchased the 56% stake in May for $2.65-billion.

Congo's mines minister said on Sunday that Gecamines, which owns a 20% stake in Tenke, had dropped its objections to CMOC's purchase as well as Chinese private equity firm BHR's November purchase of Lundin Mining's 24% stake.

Last week, the Atlanta-based Carter Centre called on the government to publish details about compensation received by Gecamines as part of any settlement.

The mines minister and Gecamines representatives could not be immediately reached for comment on Thursday. CMOCdeclined to comment on whether it had made any payment to Gecamines.

Tenke is one of the world's largest copper mines with proven and probable reserves of 3.8-million tonnes of contained copper.

Update on China coal provinces' 2017 de-capacity targets

China's northern Shanxi and central Henan provinces will take the lead in coal capacity cut in 2017, both setting 20 Mtpa de-capacity target, according to the annual sessions of provincial legislatures held in January.

The southwestern province of Guizhou followed with a capacity cut target of 15 Mtpa for this year.

U.S. steps closer to slapping duties on stainless steel sheet from China

The U.S. Commerce Department on Thursday stepped closer to placing duties on imports of stainless steel sheet and strip from China, issuing a final determination that the products were being subsidized and dumped in the U.S. market at below fair value.

The department said it affirmed antidumping duties ranging from 63.86 percent to 76.64 percent on the imports, and an anti-subsidy rate of 75.60 percent for mandatory respondent Shanxi Taigang Stainless Steel Co Ltd.

The duties will go into effect for five years if the U.S. International Trade Commision subsequently affirms its earlier finding that U.S. producers were being harmed.

AK Steel Corp, Allegheny Ludlum, North American Stainless and Outokumpu Stainless USA had brought the case seeking relief. Imports of the products from China were valued at an estimated $302 million in 2015, according to the department.

The U.S. International Trade Commission is scheduled to make its final determination of injury to U.S. producers on or about March 20.

ArcelorMittal increases European Q2 HRC, CRC, HDG offers

ArcelorMittal has increased its offer levels for coil products in the second quarter, with the company noting particular strength in the hot dipped galvanized market.

Offer levels for base grade ex-works HDG are now up to Euro730/metric ton, while cold rolled coil and hot rolled coil has been set at Euro700/mt and Euro600/mt respectively, in line with market expectations.

The announcement suggests continued acceptance of higher prices. By comparison, ArcelorMittal's Q1 offers were set at Euro575/mt for HRC, Euro680/mt for CRC and Euro690/mt for HDG, all on an ex-works basis.

The company confirmed HDG is the strongest performing product with demand less dependent on the automotive sector than previously, and buying requirements rising in most sectors.

"It's really about a supply and demand situation which is very favorable, and it's really European wide. We see a European price level with very similar supply/demand. It's the same price for the north, south and east," a senior executive at the company said.

High zinc costs are also persisting and filtering into cots, with the price at $2872/mt as of 10am (February 2) on LME Select, up from around $2500/mt at the start of the year.

Market sources had long been anticipating the announcement and it is expected that other major mills will unveil official Q2 prices in the coming weeks.

Attached Files

After 16 attempts, a cheaper method for carbon capture at work in India

As students at the prestigious Indian Institute of Technology in Kharagpur in eastern India, Aniruddha Sharma and Prateek Bumb had one obsession: finding a cheaper, more efficient way to capture carbon emissions to combat climate change.

They began working on the problem in 2009, while still at university. The eureka moment came after numerous trials and errors that required re-starting the process 16 times.

With no help from the Indian government, Sharma and Bumb tapped private investors. They also won prize money of 3.6 million pounds ($4.5 million) in a UK competition, giving them access to scientists and academics in the field.

"Carbon capture technology may have the single biggest impact on emissions reduction," said Sharma, co-founder of Carbon Clean Solutions (CCS), now based in London.

"But for it to be widely used, it's very important that the technology be cost-effective," he told the Thomson Reuters Foundation.

India is the world's fourth largest emitter of greenhouse gases. As a signatory to the Paris Agreement on climate change, it has committed to ensuring at least 40 percent of its electricity is generated from non-fossil fuel sources by 2030.

However, India - and other nations - also are looking for ways to reduce climate-changing emissions from burning fossil fuels.

Capturing carbon dioxide produced by power plants is one way to cut those emissions. But while most previous technologies have focused on capturing the emissions and pumping them below ground, CCS's technique is a capture-and-utilize one.

It uses a patented molecule that captures carbon dioxide from power plant emissions and uses it to make other useful products like baking soda.

The technology can be retrofitted onto existing plants, and is cheaper and more efficient than existing methods, Sharma said.

POLICY SUPPORT

Worldwide, technology to capture carbon dioxide emissions and store them underground has struggled to find traction.

The UK scrapped plans to spend up to 1 billion pounds to commercialize the technology just days before the Paris climate meeting in 2015.

Nevertheless, countries and companies are still keen.

BHP Billiton last year gave $7.4 million to China's Peking University to develop carbon capture technology.

India offers no subsidies for carbon capture and instead focuses on increasing its renewables capacity to cut emissions.

"To encourage innovations like this, we would need more state backing, just as we have seen in the renewables space," said Aruna Kumarankandath at the Centre for Science and Environment in Delhi.

"These technologies are hard to develop and scale."

There is clearly a market: while Sharma and Bumb's Carbon Clean Solutions has found takers in Europe, its biggest vote of confidence has come from India.

Tuticorin Alkali Chemicals & Fertilizers has used the technology at its plant in southern Tamil Nadu state since October.

At the plant, carbon dioxide is captured from a coal-fired boiler and converted into soda ash, which is used in glass manufacturing, sweeteners and detergents.

The process is projected to save 60,000 tonnes of carbon dioxide emissions a year, a world first, according to Sharma.

The cost of capture is about $30 per ton - about half the cost of other technologies in the market, he said.

"The next wave of innovation will reduce the cost further, perhaps even by half, to the point where it's almost equivalent to or less than the emissions tax," he said.

"Then it would make more sense to capture the carbon than to emit it," he said.

The move comes after the trading house in November upgraded its profit guidance for the 2016/17 financial year, which ends in March.

Coking coal futures on the Singapore Commodity Exchange soared in the second half of last year as top commodity consumer China clamped down on local production as part of a campaign against pollution.

They have since dropped by about 40 percent to around $170 a tonne, but are still double what they were in mid-2016.

"Coking coal prices have not hit bottom yet and are likely to fall slightly further," Kazuyuki Masu, chief financial officer of Japan's Mitsubishi Corp told a news conference on Thursday. But he added that the company did not expect a sharp fall.

Mitsubishi's profit forecast underscores a V-shaped recovery from last financial year when it booked its first-ever annual net loss due to massive writedowns on a slump in commodity prices.

Backed by strong earnings, Mitsubishi boosted its dividend forecast for the current year to 70 yen a share, against an earlier estimate of 60 yen and actual dividend of 50 yen a year earlier.

For the April-December period, Mitsubishi reported a 54.8-percent climb in net profit to 371.5 billion yen, as healthy profit from its metals business offset lower earnings from non-resource segments such as machinery and infrastructure.

Japanese trading houses such Mitsubishi and Mitsui & Co fulfil a quasi-national role by importing everything from oil to corn to sustain the country's resource-poor economy.

Stainless steel maker Outokumpu proposes first dividends since 2010

Outokumpu, Europe's largest stainless steel maker, reported its first annual core operating profit since 2007 on Thursday and proposed its first dividend since 2010, sending its shares sharply higher.

The Finnish company, which has struggled since the financial crisis and an unsuccessful acquisition of Thyssenkrupp's Inoxum unit in 2012, swung back to profit helped by cost cuts and rising sales at its Americas division.

Underlying operating profit rose to 45 million euros ($49 million) last year, matching analysts' expectations, from a loss of 101 million in 2015, but a proposed annual dividend of 0.10 euros per share came as a surprise to all analysts in a Reuters poll.

"The turnaround secured in 2016, combined with the progress made in debt reduction and the positive outlook that starts the year 2017, presents also the right time to start paying dividends," CEO Roeland Baan said in a statement.

It expects the stainless steel market to be strong in the first quarter both in Europe and United States, and that higher ferrochrome prices will help its profitability in Europe.

Outokumpu forecast its adjusted EBITDA to increase above 250 million euros in the first quarter of 2017, compared to 38 million a year earlier.

Shares in the company rose 6.9 percent by 1055 GMT.

"That first-quarter forecast is very bullish, and no one was expecting a dividend. They have taken the right measures and the market is favourable at the moment," said Antti Kansanen, analyst at Evli brokerage, with a "buy" rating.

The company cut its net debt target to below 1.1 billion euros at the end of the year, down by 100 million from the previous forecast.

Rio said to get approaches on last $1.5bn of coal assets

Rio Tinto Group, which agreed last month to sell $2.45-billion of Australian assets, has received approaches for its remaining coal operations in the country, people with knowledge of the matter said.

The London-based company is considering options for its Hail Creek and Kestrel mines, including a potential sale, according to the people, who asked not to be identified because the details are private. Its controlling stakes in the operations, which are located in Queensland state’s Bowen Basin and mainly produce coking coal used in steelmaking, could fetch as much A$2-billion ($1.5-billion), the people said.

Rio, the world’s second-biggest miner, has been divesting Australian coal assets since dismantling its energy division in 2015. The company is focusing on its most profitable and long-life operations in iron ore, copper and aluminum as China’s economy matures and growth cools, Chief Executive Officer Jean-Sebastien Jacques told investors at a London seminar in December.

The assets are Rio’s last producing coal mines globally after it agreed to sell its stakes in Australian thermal coal operationsto an arm of China’s Yanzhou Coal Mining for $2.45-billion. A formal sale process for Hail Creek and Kestrel may not begin until Anglo American decides whether to sell its Australian coking coal mines, the people said.

Rio declined to comment in an e-mailed statement. The company said last month it has agreed or completed at least $7.7-billion of asset sales since 2013.

Anglo American rejected a bid from Apollo Global Management and Xcoal Energy & Resources for its Moranbah and Grosvenor mines in Australia as too low, people familiar with the matter said in November. Other potential suitors for those assets included BHP Billiton, Warburg Pincus-backed mining investor Anemka Resources, Coronado Coal and AMCI Capital, the people said at the time.

Rio owns 82% of Hail Creek and 80% of Kestrel, according to the company’s website. The two operations produced a combined ten-million metric tons of coking coal and 4.6-million tons of thermal coal last year, Rio said in a January 17 filing.

Arch Coal well-positioned for higher pricing environment: analyst

Arch Coal's exposure to high quality metallurgical coal and Powder River Basin thermal coal should position the producer well in 2017's higher priced environment, an analyst said Wednesday.

New York-based FBR estimates that the St. Louis-based producer, which emerged from Chapter 11 bankruptcy in October after only nine months, has higher exposure to the burgeoning met coal markets through its flagship Leer Mine in West Virginia.

FBR said that Arch could realize $150/mt Q1 mine prices for its open met coal tonnage. The miner had previously announced hedges at $67/mt in Q3 2016, FBR said.

FBR also believes that improving domestic thermal coal markets will improve over the next six-12 months, creating opportunities for Arch.

"We believe [Arch] has spare capacity in the PRB that could be activated for the right price," FBR analyst Lucas Pipes said in a note. "We believe Arch's hurdle rate for increased production is fairly high, which we view positively in a market previously plagued by little production discipline."

Arch's Black Thunder mine in the PBR produced 67.9 million st in 2016, down 31.7% from the prior year, according to data from the Mine Safety and Health Administration.

Following Arch's emergence from bankruptcy, the company had $311 million in cash against total debt of approximately $360 million, FBR's Pipes said.

"Arch can maintain production at low cash costs without a major step-up in capital expenditures," the analyst said.

Iron Ore: $80 odd is bigger deal now than last time.

Attached Files

China iron ore imports off to strong start; support rally

There is fundamental justification for the strong start to 2017 for iron ore prices, with imports by top buyer China remaining robust and showing no signs of easing.

A total of 86.6 million tonnes was reported as discharged at Chinese ports in January, according to data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.

The risk is that this figure may actually rise in coming days as the ship-tracking and port data indicates that a further 13.2 million tonnes was due to have arrived at Chinese ports by Jan. 31.

If some of these cargoes were discharged before the end of month it could push total imports for January to close to 90 million tonnes, which would be the strongest monthly outcome since the record of 96.26 million in December 2015.

It's worth noting that ship-tracking data doesn't exactly align with customs figures, given differences in when cargoes are assessed as having been discharged, with the ship data typically under-reporting customs numbers.

For example, vessel-tracking data showed a total of 987.6 million tonnes of iron ore being discharged in China in 2016, which is 3.6 percent lower than the 1.02 billion tonnes reported by customs.

Nonetheless, the vessel-tracking data is a more timely indicator of the direction of China's imports, and they are painting a picture of ongoing strength.

This resilience does go some way toward justifying the strength in iron ore prices recently.

Front-month iron ore contracts on the Singapore Commodity Exchange ended at $80.40 a tonne on Jan. 31, up 8 percent from the $74.28 they closed at on Jan. 3, the first trading day of the new year.

They are also more than double what they were a year ago, as China's record iron ore imports in 2016 were sufficient to eat away at the persistent supply surplus of the previous few years.

CHINA DOMESTIC PRICES OUTPERFORM

The increase in SGX futures, which are based on Steel Index spot prices for cargoes delivered to China, looks reasonable in the light of the ongoing strength in iron ore imports.

However, the 17.4 percent surge in iron ore futures on the Dalian Commodity Exchange (DCE) from Jan. 3 to Jan. 26, the last trading day before the current Lunar New Year holiday period, looks overdone.

The DCE contract rose from a close of 550.5 yuan ($80) a tonne on Jan. 3 to end at 646.5 yuan on Jan. 26, once again raising concern that the authorities in Beijing may take further action to cool what they see as unjustifiable speculative price increases in commodities.

There may be a bit of froth in the DCE contract, given it has risen from a discount to a premium to the SGX price if it is expressed in U.S. dollars.

DCE futures were $30.91 a tonne on Jan. 4 last year, while SGX contracts were $41.70, putting the Chinese domestic price at a discount of 26.5 percent.

As of Jan. 26, the DCE contract was $94 a tonne in U.S. dollars, a premium of 16 percent to the SGX price.

This disparity indicates that the Chinese contract is now overvalued compared to the international marker, but whether the gap narrows again will largely depend on the view of Chinese investors on the strength of the country's steel sector, as well as any cooling measures taken by the authorities.

On the supply side, iron ore is steadying, with the big three Australian producers, Rio Tinto, BHP Billiton and Fortescue Metals Group keeping production targets largely steady.

Top miner Brazil's Vale expects to raise its output to 340-380 million tonnes this year from about 340-250 million in 2016 as its starts up the last of its major new mines, the S11D project.

Attached Files

February steel scrap jitters keep US sheet spot buying limited

The anticipated decline in February scrap prices is an ongoing concern for US sheet buyers leading to limited spot transactions, sources said Tuesday.

February scrap prices look to be anywhere from $30-$40/lt lower following a significant drop in US bulk export sales, with prime scrap prices more resilient. The expected drop has led to many buyers being wary to commit at anything more than the bare minimum needs for spot purchases, one mill source said.

Hot-rolled coil prices were around $620/st and many buyers have sensed the market has met its high-water mark for the near future and deciding to wait on purchases unless absolutely necessary, the mill source added. The market's overall conditions looked to remain favorable through March, according to the source but anticipated pricing pressures to increase through the second quarter.

February HRC production was spoken for at one mill, according to a second mill source and March orders have been healthy.

March production available was limited so the mill source said they were "holding their own." There was some fear prices will drop but he did not think it would be a large decline.

There were very few inquiries from service centers for imported cold-rolled coil, according to a trader. The sources for new CRC imports are "so limited" the trader said. In addition, inventory levels and months of supply held at service centers in December were a "shock," even though absolute levels of inventories were not "terrible," the trader said.

S&P Global Platts maintained its daily HRC and CRC assessments at $620-$640/st and $820-$840/st, respectively. Both prices are normalized to a Midwest (Indiana) ex-works basis.

Glencore considering bid for Impala’s chrome waste business

Glencore, the mining and trading firm run by billionaire Ivan Glasenberg, is considering a bid for Impala Platinum Holdings’s 65% stake in a chrome waste-retreatment operation in South Africa, two people familiar with the matter said.

Glencore already has an agreement to buy metal from Chrome Traders Processing, the closely held company that owns 30% of the business controlled by Impala. Glencore, which has chrome assets nearby, is bullish on prices and keen to grow its presence in the industry that supplies stainless steelmakers with the ingredient that prevents corrosion, said one of the people, who asked not to be identified because the information is private.

The operation produces more than 200 000 metric tons of chrome concentrate a year from tailings, or waste material from platinum mining, near the northern South African town of Rustenburg. It made a profit of R67-million ($5-million) in the year through June 30. Impala sees the operation as a non-core asset and wants to focus on its platinum mines, the Johannesburg-based miner said earlier this month. Platinumis found together with chrome in many of the ore bodies mined in South Africa.Bidders Welcomed

“It’s early in the process still and we entirely welcome all interested parties,” Impala spokesperson Johan Theronsaid by phone, declining to comment on Glencore specifically. “We’re confident we can realize value for shareholders.”

Standard Bank Group is running the sales process and is drawing up a shortlist of suitable bidders, one of the people said. Standard Bank declined to comment.

Glencore owns five chrome smelters and seven chrome mines in South Africa, including the Waterval chrome mine and Wonderkop ferrochrome plant. The partnership that Glencore has with Merafe Resources makes it the world’s largest ferrochrome producer.

Deutsche Bank won’t finance any coal projects any longer

German banking giant Deutsche Bank is fully walking away from coal, as it has decided not to finance any greenfield thermal coal mining or coal-fired plants any longer.

Announcing the changes to its coal financing guidelines Tuesday, the lender also said it will gradually reduce its existing exposure to the thermal coal mining sector. While it didn't specified a timeline, it is said that Deutsche Bank may just reduce its coal financing by up to 20% over the next three years.

The bank will also begin gradually reducing its existing exposure to the thermal coal mining sector.

“[Signing the Paris Pledge for Action] emphasizes the bank’s commitment to protect the climate and to contribute to the overall targets set by the Paris Agreement to limit global warming to 2 degrees above pre-industrial levels,” it said in the statement.

This is not the first step away from coal the bank has taken. In March last year, Deutsche Bank said it would phase out credit and the underwriting of debt and equity for mining companies that use contentious mountaintop removal methods to extract coal.

"We welcome the decision of Deutsche Bank to stop investing in climate-harming new coal infrastructure,” Oliver Krischer, deputy head of the German Green Parliamentarian Group, said in an e-mailed statement. “We hope that Deutsche Bank will stop all investments in the near future: 20% is only a beginning."

The institution used to be coal miners’ top financer, delivering nearly $7 billion from 2013 to 2015 alone.

CNXC looking to cash in on export met coal market in 2017

Northern Appalachian producer CNXC Coal had a record 1.8 million st of production and sales in the fourth quarter as markets improved, and executives said the company is hoping this year to cash in on a reinvigorated metallurgical environment.

During an earnings call Monday evening, CEO Jimmy Brock said a recovering domestic market and strong seaborne markets led to a record quarter as the longwall mines in Pennsylvania ran at full capacity. Average realized pricing for Q4 improved to 75 cents from the previous quarter to $45.05/st, while costs fell $1.89 from Q3 to $33.90/st.

Of the 1.8 million st sold in Q4, about 17% went into export markets, with half, or approximately 150,000 st, of export volumes sold into the high-vole met markets in Asia and South America.

CNXC said it expects coal sales this year of between 6.25 million and 6.75 million st, up from 2016's total of 6.2 million st, with about 15% of sales expected in the export market. In Q4, the company contracted 325,000 st for 2017 across all markets, increasing its sold position for the year to 6.4 million st.

Jim McCaffrey, senior vice president of coal sales, said export thermal pricing has improved from year-ago values but remains slightly below domestic prices because of the sulfur discount. He added that he anticipates the company will be able to sell another 1 million st into the met market this year at rates above thermal prices.

"We are currently active in negotiation with several customers to expand our crossover metallurgical coal portfolio," Brock said. "We continue to believe that this is currently the highest priced market for our coal."

Attached Files

Japan coal fired power station plans

Japanese government planning to build 45 new coal fired power stations to diversify

The power plants will utilise high energy, low emissions (HELE) technology that use high-quality black coal.

Japan is the largest overseas market for Australian coal producers, taking more than a third of all exports.

Tom O'Sullivan, a Tokyo based energy consultant with Mathyos Global Advisory, said in the wake of the Fukushima nuclear disaster in 2011, Japan started importing more liquefied natural gas (LNG) from Australia.

But he said the move to more coal fired power was because coal was cheaper than LNG, and the energy security was priority for the government.

"Japan needs to import 95 per cent of all its energy sources," he said.

"So it's trying to diversify its fuel sources and it doesn't want to be too reliant on any one market."

Japan has ratified the Paris Climate Agreement and committed to a 26 per cent reduction in carbon dioxide emissions by 2030.

But Mr O'Sullivan said Japan was yet to price carbon emissions.

"Although Japan spent $US36 billion dollars on commercial solar power last year, and is planning much more, there is no carbon price," he said.

"So at this stage there is no incentive to not build coal fired power station, unlike other countries and states that can have a price as high as $US35-40 per tonne of carbon dioxide emitted."

Mr O'Sullivan said while community and environmental groups had expressed concerns about the construction of a major coal power station, Prime Minister Shinzo Abe was firmly behind the plans.

He said the decision would ensure the use of coal in Japan would continue well into the middle of the century.

"These guys [private companies] are not going to go ahead and [put money into] in large capital investments unless they have a 30-year depreciation period," he said.

"So if they're building these coal power plants now it is reasonable to expect them to be still on the books by the end of 2050."

HELE power plants and emissions reduction

There are a number of different types of HELE power station technologies. In Australia, the CSIRO has been working on different programs to further the use of them.

The Minerals Council of Australia and the Federal Government are on the record saying HELE coal fired power plants produce half of the emissions of traditional plants.

But David Harris, a CSIRO research director in the Low Emissions Technology Department, said it was not as straight forward as that.

Attached Files

Iron-ore production in Odisha to hit decade high

Buoyed by a revival in prices and transaction volumes in international iron-ore trade, the eastern Indian province of Odisha is poised to achieve a decade-high in iron-ore output.

According to a senior provincial government official, iron-oreproduction is expected to touch the 120-million-ton mark at the end of the current financial year on March 31. Production growth is expected to be maintained at about 10% to 20% in the next financial year, with government having already announced a series of measures to bring new iron-ore mines back into production.

Earlier this month, Odisha approved the renewal of seven iron-ore mining leases for a period of 50 years under new federal mining legislation. The leases expired as they did not have the required clearances under the Mines and Minerals (Development and Regulation) Act, which was promulgated in 2015. The clearances have since been regularised and fresh leases have been awarded.

A government official said on Tuesday the granting of fresh mining leases would result in substantially higher iron-oreproduction in Odisha over the next two years.

The province would also put two more iron-ore blocks up for auction in the next month, following the successful conclusion of three iron-ore block auctions last year. The government has completed preliminary work to auction the Netrabandhapahad and Kalmang mines, which include a differential global positioning system of survey, as mandated by the central Mines Ministry.

However, the official could not provide details of the iron-orereserves and other geological details of these blocks, as geological details and mappings would be made available only after a notification of the auction was issued.

Mining Weekly Online has also learnt that the Odisha government plans to put two more iron-ore blocks up for auction before the end of March.

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NMDC seeks new iron-ore leases through preferential allotment

India’s largest iron-ore miner, NMDC, will be able to ramp up its yearly production from 30-million tons currently to 75-million tons by 2019 and 100-million tons by 2022, if it were awarded additional mining leases in iron-ore-bearingprovinces.

NMDC has conveyed to the government that its current operational mines, which are predominantly located in the central province of Chhattisgarh, will be a limiting factor in rapidly expanding production capacities, unless it is able to secure fresh mining leases in other geographies.

The government-owned and -managed miner has communicated that the government should allocate fresh mining leases under the preferential route as per the newly amended mining legislative norms.

NMDC wants the government to award fresh mining leases to the company under Section 17A of the Mines and Minerals (Development and Regulation) Act 2015, which will exempt the company from having to follow the mandatory auction route for securing the new leases.

The relevant section states that the “state government may, with the approval of the central government, reserve any area not already held under any prospecting licence or mininglease, for undertaking prospecting or mining operationsthrough a government company or corporation owned or controlled by it and where it proposes to do so, it shall, by notification in the official gazette, specify the boundaries of such area and the mineral or minerals in respect of which such areas will be reserved”, a NMDC official pointed out.

NMDC has also stated that it will be willing to consider development of new iron-ore blocks in other provinces like Odisha, Jharkhand, Karnataka and Chhattisgarh through joint ventures or special purpose vehicles as may be decided by the central or provincial governments.

Securing additional iron-ore mining leases through the preferential route is also critical for the miner to offer higher volumes through merchant sales, as a substantial part of its current production has been allocated for its upcoming steelmaking project.

NMDC is constructing a three-million-ton-a-year steel mill at Nagarmal, Chhattisgarh, for which it is investing $284-million to develop Deposit 4 of its iron-ore reserves at Bailadila, also in the same province, which will produce seven-million tons a year to feed the steel mill.

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RBCT targeting export of 77Mt coal in 2017

The export target of Richards Bay CoalTerminal (RBCT) for 2017 is 77-million tonnes, up on the 72.5-million tonnes exported in 2016.

In 2015, RBCT exported a record 75.4-million tonnes of coal.

RBCT CEO Alan Waller described as “amazing” the fully integrated value chain, which the private-sector-owned terminal has with State-owned Transnet.

He expressed RBCT’s ongoing commitment to efficiencies in partnership with Transnet Freight Rail and the TransnetNational Ports Authority.

“The true value of RBCT lies in the efficiency and reliability with which the terminal can move a ton of coal,” Waller told a visiting media contingent, which included Creamer Media’s Mining Weekly Online.

The terminal is in the midst of a R1.4-billion equipment-replacement project, which remains on time and on budget for completion in January 2018.

RBCT engineering and project manager Bill Murphy told Mining Weekly Online that the installation and erection of the new equipment would in no way interrupt the operation of the terminal, which would continue to function without interference.

He expressed strong confidence in Chinese company TZME, which is nearing the completion of a new shiploader under Sandvik Mining Systems.

Outgoing RBCT chairperson Mike Teke announced his stepping down as chairperson.

Former CEO Nosipho Siwisa-Damasane is the new incoming chairperson with Teke remaining on the board as a nonexecutive director.

Black women own 6.18% of RBCT, which is a 32.53% black-owned terminal, where 9 000-plus trains delivered coal for more than 900 vessels from coal mines as far away as 1 060 km.

The terminal averaged 76 vessels a month in 2016, peaking at 95 vessels in November when it pulled out all the stops to despatch a record eight-million tonnes.

Trains peaked at 868 in October, two short of a record-breaking level with an average of 25 trains a day being tipped.

The terminal is in the process of reallocating the four-million-tonne coal export entitlement for junior miners under the under-utilised Quattro scheme.

Alliance plans higher coal production and sales in 2017

Illinois Basin and Appalachian coal producer Alliance Resource Partners expects higher coal production and sales in 2017, citing improvements in domestic thermal coal markets, after posting a 74% increase in net income during the fourth quarter of 2016 over a year ago.

"Supply and demand fundamentals have improved meaningfully compared to this time last year and are pointing to cyclical recovery in domestic thermal markets," Joseph Craft III, president and CEO of the Tulsa, Oklahoma-based company, told analysts during a conference call Monday to discuss Q4 and full-year 2016 earnings.

Craft also anticipate the administration of President Donald Trump will have a positive impact on the coal industry, including Trump's intention to reduce burdensome federal regulations on industry.

In 2016, Alliance produced and sold 35.2 million and 36.7 million st of coal, 15% and 9%, respectively, below 2015 levels as the company strategically shifted production to its lowest-cost mines to offset a decline in demand and lower prices.

This year, Alliance expects production to rise by about 3 million st with sales up around 2 million st. Already, the company has committed sales of 34.9 million st for 2017, or roughly 90% of its anticipated output. So far, it also has secured sales commitments for 18.9 million st in 2018.

Alliance realized 3.3% less on the 10.5 million st it sold in the October-December period, an average of $48.01/st, compared with an average of $49.63/st it received in the fourth quarter of 2015.

But costs fell even more. Fourth quarter costs averaged $27.72/st, down 16.5% from average costs of $32.44/st a year earlier.

Craft said Alliance's projected increase in production this year is driven largely by an anticipated rise in output at its Hamilton No. 1 longwall mine near McLeansboro in Hamilton County, Illinois. Alliance acquired the mine, then known as White Oak No. 1, two years ago from privately owned White Oak Resources.

According to Craft, there was a temporary work force and production cut last summer at the mine, but more miners were recalled and production began increasing again late last year.

In the fourth quarter, Hamilton 1 turned out 1.3 million st, almost triple the 500,000 st or so it had produced in previous quarters of the year.

"We didn't really start that ramp until November at Hamilton," he said. "If we can get Hamilton to full production, we believe it will be our lowest-cost mine."

The mine is capable of producing as much as 6 million st annually.

Alliance also expects to boost production this year at its Gibson South underground mine near Princeton in Gibson County, Indiana. Its other top performing mines include the River View continuous miner operation in Union County, Kentucky, and Tunnel Ridge longwall mine in West Virginia and Pennsylvania.

Although it never has been a major coal exporter, Alliance already has contracted for 1.5 million st in export sales for 2017 over last year, including 167,000 st of metallurgical coal. However, it expects to sell its remaining 10% of uncommitted tons this year into the domestic market.

"We feel confident those tons will be placed," Craft said. 'The reason they're open today is that our customers are continuing to stick to a shorter-term buying practice instead of committing more long term."

Overall production in the high-sulfur ILB is expected to be flat in 2017, he added.

"The only tons we've seen go up are our own 3 million from us," he said. "We expect flat production to continue into 2017" in the basin.

There is hope for higher realized prices, though, in 2018 if not in 2017, depending upon electric utility demand and natural gas prices staying in the range of $3.25/MMBtu. "We do anticipate growth in both tonnage and price as we look to 2018," he said.

Brian Cantrell, Alliance's chief financial officer, said the company recorded net income of $119.6 million in the fourth quarter and $339.4 million for all of 2016, compared with $21.5 million in the fourth quarter of 2015 and $306.2 million for all of 2015.

Total revenue fell to $527.4 million, down 2.7% in the latest quarter, and to $1.93 billion in 2016, versus $2.27 billion in 2015, mainly because of lower price realizations.

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Gerdau withdraws $40/st US steel beam increase

Gerdau Long Steel North America on Monday said it was withdrawing a previously announced $40/st increase on most beam products "in order to remain competitive."

The increase, which was to take effect with new orders Monday, was announced January 24, as Gerdau said it was looking to recover escalating raw material costs. As of Monday, no other US beam producers had followed the increase.

In a letter sent to customers Monday, Gerdau said discounts previously offered by the company in order to remain competitive with other steel producers will be reduced or eliminated, effective immediately, as a continued effort to offset some of escalation in production costs.

"We will continue to monitor the market to ensure Gerdau and its partners are on a competitive playing field and reserve the right to make adjustments to our pricing policy as needed," the letter said.

In retracting the $40/st increase, Gerdau's list price for medium wide-flange beams remains at $751/st ($33.75/cwt). This price was set in December, when US mills announced a $35/st increase.

Fortescue sees iron ore demand boost as China closes steel mills

Fortescue sees iron ore demand boost as China closes steel mills

A Chinese crackdown on inefficient steelmaking will support demand for iron ore imports, Australia's Fortescue Metals Group said on Wednesday, maintaining its forecast for record shipments this year amid a rebound in prices.

Exports to China by the world no. 4 iron ore miner dipped slightly in the quarter to Dec. 31, quarterly production data showed, but are still on track to meet or beat the high end of its 2016/17 guidance for 165 million to 170 million tonnes.

Iron ore was one of the best-performing commodities in 2016, defying analyst forecasts for a correction on the back of plentiful supply and an expected slip in demand from China, the world's biggest buyer.

A push by Beijing to do away with high-polluting and low efficiency electric arc furnace steel mills, which use scrap steel rather than iron ore, will help miners, Fortescue chief executive Nev Power said.

"This translates into 40-50 million tonnes of iron ore," Power said. "We are very confident that the substantial numbers will be replaced by integrated steel mills,"

By some industry estimates, mini-mill steel production could be as high as 100 million tonnes a year, nearly 10 percent of China's total capacity.

The expected increase in demand could help offset expectations that record Chinese imports of just over 1 billion tonnes in 2016 would contract this year.

However, Power cautioned that the iron ore market would take even an additional 50 million tonnes of demand "in its stride", as Fortescue and larger rivals such as BHP Billiton and Rio Tinto operate at maximum rates

The newly built Roy Hill mine neighbouring Fortescue in Australia's Pilbara mining district alone is getting set to produce up to 55 million tonnes this year.

World no. 4 iron ore miner Fortescue Metals Group on Tuesday reported a slight drop in second-quarter shipments but remained on track for a bumper year as demand and prices continue to outstrip forecasters' expectations of a slowdown.

The Australian miner shipped 42.2 million tonnes of ore in the quarter to Dec. 31, down by 4 percent from the 43.8 million shipped in previous quarter.

For the December quarter, Fortescue's cash production costs fell by 7 percent to $12.54 a tonne from the previous quarter and were down 21 percent on a year earlier, the company said.

The final cost for Fortescue of mining and shipping its ore to China stands at around $24 a tonne, Power said.

Spot iron ore prices surged 81 percent last year and are currently around $80 a tonne, despite analysts' forecasts for a contraction to around $55.

But forecasters remain concerned that millions of tonnes of additional low-cost supply from Australia and Brazil will soon send prices into retreat.

A Reuters poll in mid-December put the average price of iron ore at $54.70 per tonne in 2017.

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Russian mining and steel group Metalloinvest reported higher iron ore pellet output in 2016 to 25.2 million mt, up 5.9% on 2015, as it started the new No. 3 pellet plant at its MGOK complex, as it broke record annual levels for iron metallics and steel production.

For Q4 2016, pellet output at 6.3 million mt was down on Q3's 6.5 million mt, and up from the 6.1 million mt seen in the year earlier period, according to an operations report.

Higher group DRI and hot metal output later in the year reduced external pellet sales volumes to 3.862 million mt for the final quarter of 2016, down by 2.7% on Q4 2015 shipments. Pellet volumes were stable at 14.535 million mt over 2016.

Metalloinvest saw an increase in sales to Europe as the share of iron ore, pellets and HBI/DRI shipments to Russia shrunk to 61% in 2016 from 66% in 2015.

The exit of tons supplied by Samarco as the Brazilian company's operations was idled through last year led to increased market interest for alternatives, as Metalloinvest's new No. 3 plant allowed for a greater range of improvements to pellet qualities.

Europe took a 25% share of the group's iron ore, pellets and HBI/DRI shipments, up from 19% in 2015, with an increase in supplies to the Netherlands, Slovakia and Italy. Asia took a 8% share and MENA 4%, while MENA shipments increases in Q4.

"In full-year 2016, the company increased output of all major products, reaching all-time high results in iron ore, pellets, HBI/DRI and hot metal production," the company report said.

"In Q4 2016, the share of shipments to the Russian and European markets was unchanged quarter-on-quarter and amounted to 62% and 27%, respectively." External HBI/DRI shipments rose 13.8% to 658,000 mt in Q4, while volumes for the year showed a 5.4% rise to 2.514 million mt.

India cedes top coal importer spot back to China as growth trend stalls

India has surrendered its status as the world's top importer of coal back to China, with its overseas purchases in 2016 falling to less than 200 million tonnes.

The question now is whether lower Indian coal imports is the new reality, or if last year was just a blip.

India's coal imports last year totalled 194.93 million tonnes, according to vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.

This was 5.4 percent lower than the 206.6 million tonnes recorded for 2015, and also less than the 255.5 million tonnes imported by China last year, according to official customs data.

It should be noted that despite the decline, India is still importing nearly four times as much as it did a decade ago, and almost double the amount from five years back.

India's rapid growth in coal imports came amid strong economic growth and struggles by state miner Coal India to lift output to meet its ambitious targets.

India's coal production has been rising, although Coal India may battle to reach a target of 575 million tonnes for the 2016/17 fiscal year that ends on March 31. Output for the April to December period was 378 million tonnes, a rate that if maintained for the final three months of the financial year would see production closer to 504 million tonnes.

Nonetheless, India's Coal Secretary Susheel Kumar said on Jan. 6 that the miner is expected to raise its output to 660 million tonnes in the 2017/18 fiscal year, and to 1 billion tonnes by 2020.

Those targets tend towards the optimistic, but even if Coal India doesn't hit them, the world's biggest coal miner is still likely to keep raising production by millions of tonnes a year.

This alone puts a question mark over the continuing viability of coal imports into India, given that Coal India is a low-cost producer that has the backing of a government with the elimination of coal imports as a stated policy goal.

For India's coal imports to reverse last year's slide, it is likely that two conditions have to be met.

The first is that India's coal demand would have to rise faster than Coal India's output. This is possible but it's not a base case scenario.

India is already starting to pull back from building more coal-fired power plants, and increasing pollution in the capital New Delhi is likely to see further pressure on the government to tackle the problem.

India's pre-construction pipeline of coal-fired power generation dropped by 40 gigawatts (GW) last year, according to a Global Coal Plant Tracker run by non-government and anti-coal group CoalSwarm.

Only China - battling its own pollution issues - cancelled more coal power projects, with 114 GW scrapped, CoalSwarm said.

Still, the International Energy Agency said in a Dec. 12 report that it expects India's coal demand to rise by an annual average 5 percent by 2021.

If this is case, and Coal India comes close to its output targets, it's likely India won't need to import much coal for power generation, although given the paucity of local reserves it will still have to buy coking coal overseas to make steel.

CARMICHAEL MINE BLACK SWAN

The second condition for India to reverse its slide in coal imports is that global coal prices would have to remain cheap so incoming shipments could compete with Coal India production.

It's perhaps no surprise that India's coal imports fell for the first year in six in 2016, just as global coal price benchmarks had their first increase for five years.

Benchmark Australian thermal coal prices at Newcastle Port rose 87 percent last year to $94.44 a tonne, although they had dropped to $84.17 by the end of last week.

India buys the bulk of its coal imports from Indonesia, taking mostly low-rank grades that can be blended with higher-quality coal prior to burning.

Indonesian coal prices also increased last year, with low-rank 4,200 kilocalorie per kilogram fuel COAL-ECO-ID jumping 70 percent to end 2016 at $53.46 a tonne.

These sorts of price increases will cut the appeal of imported coal, meaning cargoes from top suppliers Indonesia, Australia and South Africa will have to compete on convenience and flexibility of delivery.

Overall, it seems that the case for India importing coal is weakening, both on a demand and price basis.

But, and it's a big but, the outlook for imports may change dramatically if Adani Enterprises goes ahead with the construction of its $16 billion Carmichael mine in Australia's Queensland state.

Adani remains publicly committed to the controversial project, saying on Dec. 6 that it planned to start construction around the middle of this year on the mine, which is slated to produce as much as 60 million tonnes per annum.

Adani plans to ship the mine's output to India to burn in its own power plants, arguing that the project therefore isn't exposed to global coal prices and has a guaranteed customer.

The Adani mine, bitterly opposed by environmentalists in Australia, is the black swan for India's coal imports. With the mine, the imports can increase, without it, they are likely to continue to decline over time.

Russia appeals to WTO over EU duties on Russian steel

Jan 30 Russia said on Monday it was appealing to the World Trade Organisation to settle a dispute with the European Union over anti-dumping duties imposed on its steelmakers.

The EU in August introduced duties of up to 36.1 percent on Russian cold rolled steel, a product used in the construction and automotive industries, following allegations Russian steelmakers were exporting at unfairly low prices. It also imposed duties on Chinese cold rolled steel.

The Russian Economy Ministry said it had sent a request to the WTO to help resolve the dispute.

"The reason for the suit was multiple violations of WTO rules committed by the European Commission during its anti-dumping investigation," the ministry said in a statement.

Russia's NLMK and Severstal, two of the country's largest steelmakers, lodged formal complaints against the European Commission in June, alleging bullying by its officials during their investigation.

NLMK, which employs over 2,000 people in Europe, said the investigation was conducted "in flagrant violation of all possible norms and standards."

"The decision to impose anti-dumping duties is absurd and NLMK Group continues to deny accusations of dumping on the EU market," the company said in a statement.

A spokeswoman for Severstal said the company maintained the EU investigation had been conducted improperly and it supported the economy ministry's actions.

The WTO last week threw out a number of EU complaints in a dispute over Russian anti-dumping duties imposed on German and Italian light commercial vehicles.

Australia iron ore ports clearing ahead of cyclone - authority

A tropical low in the Indian Ocean off Australia was forecast on Friday to intensify to cyclone strength within 24 hours, disrupting shipping from the world's biggest iron ore export terminals and threatening offshore production of liquefied natural gas (LNG).

The Pilbara Ports Authority said in a statement it had already cleared vessels from outer anchorages at Port Hedland, and vessels within the inner harbour would depart by 0500 GMT.

Port Hedland is used by major miners BHP Billiton and Fortescue Metals Group for shipping all their ore, and last month accounted for 41.2-million tonnes of exports, mostly bound for China.

The nearby port of Dampier, used by Rio Tinto , Australia's biggest supplier of the steelmaking raw material, as well as the port of Asburton, were expected to be cleared of vessels within four or five hours, according to the authority.

The miners were not immediately available for comment.

At 0230 GMT a tropical low was located 260 kilometres (160 miles) north-northeast of Port Hedland and was likely to reach category 2 cyclone intensity - at the lower end of the 1-5 intensity scale - late on Friday or Saturday, according to Australia's Bureau of meteorology.

Offshore, Woodside Petroleum, Australia's biggest independent oil and gas company, said it was "taking the necessary precautions to safeguard our people and assets".

Its operations in the region include the Pluto and North West Shelf oil and LNG fields.

While category 1 or 2 cyclones are at the lower end of the scale, they still pack enough punch to cause damage and delay port and mining operations.

On January 16, 2016, a category 2 cyclone slammed the west Australian coast and was later blamed by BHP for lower-than-expected iron ore production.

Molybdenum firm as buyers digest price increases

Molybdenum oxide prices continued their push higher Thursday, but with less momentum than earlier in the week.

A deal for 20 mt oxide powder to an end consumer in Northwest Europe was concluded at $7.75/lb DDP while others said sales had been concluded up to $7.70/lb in Asia. In Europe bids at $7.65/lb were being rejected.

One European trader reported declining a bid at $7.65/lb as he was offering 10-15 cents higher. Others said they had received inquiries and traders appeared to be fishing for prices.

"Moly is gently simmering today, it's not as active as the last couple of days," a second European trader said.

A seller source said steel mills had been shocked by the price increase, others agreed it was a surprise.

"You can't explain it because on the fundamentals nothing has really changed," a third European trader said.

In Asia it was quieter as the Lunar New Year holidays had started, but offers were indicated at $7.70-$7.75/lb. A South Koran trader reported a ferromolybdenum deal at $18.10/kg.

European ferromolybdenum was reported sold at $18/kg and $18.30/kg while offers were at $18.50/kg.

Platts daily dealer oxide assessment was $7.55-$7.70/lb from $7.50-$7.68/lb while the daily European ferromolybdenum assessment climbed to $18-$18.30/kg from $17.80-$18.25/kg.

Prospects brighten for Russian steelmakers as economy improves

Russia's biggest steelmakers are expecting 2017 to be a better year for the industry as the national economy improves, thanks to firmer oil prices, and higher steel prices support profits.

The companies have suffered over the last two years as world steel prices hit 11-year lows and the country's economic crisis sapped domestic demand.

Net profits at the Russia's biggest steel producer, NLMK, fell 6 percent year-on-year in the third quarter of 2016 and analysts expect weaker earnings in the fourth quarter. Profits at Evraz, the country's second-biggest producer, plunged 63 percent in the first half of the year.

But after two years of recession due to a collapse in oil prices and the imposition of Western sanctions over Moscow's actions in Ukraine, Russia's economic prospects are brightening.

Officials now see growth in gross domestic production of up to 2 percent this year.

"We believe that there are grounds for a recovery in the economy and steel demand in 2017," Pavel Vorobyev, head economist for Severstal's corporate strategy department, said.

"In 2015 and 2016 some genuine, deferred demand has built up in the Russian economy, which could now appear in the next year," Vorobyev said, adding that he saw Russian steel demand increasing by around 1.5 percent this year.

Efforts to raise money also point to increased confidence in the sector. NLMK is currently drawing up a new expansion strategy and said in December it could issue Eurobonds this year.

Evraz is also considering a convertible bond issue while TMK, Russia's largest maker of steel pipes for the oil and gas industry, is talking to banks about holding a secondary share offering, according to financial market sources.

"Metal producers will carefully follow the situation in the construction sector and infrastructure, which accounts for about 80 percent of total demand in the country," NLMK said in a statement given to Reuters.

Construction work in Russia is seen increasing by 1 percent quarter-on-quarter in the first three months of 2017, according to state statistics service Rosstat, compared to a 10 percent fall in previous quarter.

Coupled with higher domestic demand, a recovery in steel prices will further support profitability for Russian steelmakers, VTB analysts said.

The Russian rouble is also expected to weaken after the central bank announced it would start buying foreign currency next month, supporting steelmakers' export revenues.

World steel prices fell to their lowest level since 2004 in 2015, due to an oversupply from China, the world's largest producer and consumer of steel, and slack global demand.

Announcing a 2.5 percent increase in production for 2016 on Thursday, steelmaker MMK said demand would remain under pressure from seasonal weakness in the first quarter of this year but higher prices would be maintained.

"Signs of improvement in a number of sectors mean we can expect the beginning of a recovery in domestic demand and the preservation of price premiums in 2017," the company said in a statement.

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